Economics | The Disappointed Optimist

Do Conservatives Hate the Free Market?

[Note: This article was written about Kentucky Governor Matt Bevin, but the logic applies to all conservatives and their constant complaints about the entertainment industry.]

Does Matt Bevin hate the free market? Well, he’s never come right out as said so, but there’s little doubt it’s what he meant in his recent criticism of the American entertainment industry.

In addressing recent school shootings, Governor Bevin laid the blame on the entertainment industry in general and violent video games in particular. These “have desensitized people to the value of life … the dignity of human decency.” This type of criticism of media and entertainment is common among conservatives, and it highlights an interesting contradiction.

Bevin, like most conservatives, claims to believe in free and unregulated markets. They assert that regulation of industry impedes the ability of business to operate and increases the costs of doing business, which stifles the economy and reduces employment. If only we could get government out of the way by eliminating regulations, business will flourish, the economy will grow, and there will be more than enough jobs for everyone. Based on that theory, one of the main goal of Bevin’s administration has been to cut business regulation.

The reality of the modern world is that virtually every industry is regulated in some form or fashion. Everything from apples to Zyrtec is regulated. There are product safety regulations to make sure companies don’t sell unsafe goods. There are environmental regulations to ensure factories don’t despoil the environment. Employment and work-place safety regulations restrict the ability of companies to harm or take advantage of employees. Regulations on the banking, investment, and financial industries ensure that these companies don’t swindle consumers.

Conservatives like Bevin hate these regulations and the regulatory agencies that enforce them. They’re not needed, according to the laissez-faire, hands-off, economic theory because the unregulated free market will correct itself. The “unseen hand” of the market, guided by the free choice of millions of consumers, will reward good companies and punish the unscrupulous.

That, at least, is the theory. Are there any completely free and unregulated industries in America? Earlier I said “virtually” every industry is regulated, but there is one exception: the entertainment industry. Because of the First Amendment the government can’t regulate or control the content of books, movies, television shows, songs, or even video games. Once upon a time there were regulations and there was censorship, but court cases in the 1950’s, 60’s and 70’s said these restrictions violated the First Amendment. In a case involving the book “Lady Chatterley’s Lover” the court said that the government has no place in regulating the content of a book. In Miller v. California, in 1973, the Supreme Court said that the government could only regulate the most extreme forms of obscene material, and not mere pornography. This decision opened the door for the now multi-billion dollar porn industry.

Entertainment is driven solely by consumer demand. It is the purest of free markets. Go to iTunes and you can find any type of music under the sun, from Anglican Church choral music to Zydeco, and literally everything in between. But what’s popular? Mindless pop and thuggish rap. The American movie industry produces everything from preachy Christian movies starring Kirk Cameron, to explicit hard core pornography. What sells? Mostly sequels and action-adventure movies. The point is that the entertainment industry, including the video game industry, is the only free, unregulated market in America. And conservatives hate it.

According to conservative economic theory, the unseen hand of the free market, guided by millions of individual consumer choices, should produce socially beneficial results. But according to Bevin it has slapped us in the face.

What does it say about Governor Bevin and conservatives in general, that they love the theory of the free market, but hate the only free market in America? And more broadly, what does it say about the theory of free markets when the only truly free market produces such widely reviled and dismal fare?

This essay was published in the Lexington Herald-Leader on March 4, 2018, at http://www.kentucky.com/opinion/op-ed/article203222119.html

Where to Find Trump’s America

President Trump’s inaugural address offered a stark vision of a devastated nation. Trump spoke of economic collapse in the form of “rusted-out factories scattered like tombstones across the landscape of our nation” and a veritable wave of “crime and gangs and drugs that have stolen too many lives and robbed our country of so much unrealized potential.” He said that with his inauguration “this American carnage stops right here.”

Many critics called it shockingly bleak. Conservative columnist George Will called it “the most dreadful inaugural address in history.”

Trump’s address to Congress was less graphic, but no less bleak.

Commentators, pundits, and opposing politicians noted that the reality in America is nowhere near as dark as Trump suggested. Crime has decreased steadily since the early 1990’s. There are clearly weaknesses in the American economy, but the United States has one of the most robust economies in the world.

This raises a question: Is Trump’s vision of America related to a real place? Where can you find Trump’s America?

The answer is on television. Television offers a distressingly bleak view of humanity and the state of the nation. Cable and network news programs are awash in crime and mayhem. The adage is “if it bleeds it leads.” Most of the air time on twenty-four hour cable news is devoted to disasters and crime. A study by George Washington University Professor of journalism Nikki Usher found that the news media has over-reported the prevalence of crime since the 1970’s, and this has gotten worse because of the immediacy of cable and internet news which focuses on “breaking news” like disasters and gruesome crimes.

Local television news is no better. A Pew Research study found that crime, and a category labeled “accidents and disasters,” account for nearly half of all local news.

Even with the rise of on-line news the majority of Americans – fully 57% – still get most of their news from television. Most people get news from a variety of sources, but older people consumes far more television than the young. Among those over 65, according to Pew Research, 85% watch television news, 48% read the newspaper, and 20% get news on-line. Among millennials, 27% watch television news and 50% get most of their news on-line. Older people rely primarily on television for their view of the world, and since older correlates with conservative it means that conservatives rely on television for news.

The reliance on television means that the public has an overwhelmingly bleak view of the state of the nation, but it’s a view separate from reality. The violent crime rate in the country has been on a steady decline since the early 1990’s. The crime rate in 2010 was roughly a quarter of the rate in 1993. Despite this decrease, since 2003 over 60% of Americans have consistently said that there is more crime than a year ago. In 2015 nearly 60% of Americans said that crime was a very serious problem. Among Trump supporters, who tend to skew older and whiter, 78% said that crime has gotten worse since 2008. Only 37% of liberals believe the same thing.

It shouldn’t be surprising that the 60% of Americans who say that crime is out of control is nearly the same as the 57% who get most of their news from television. These people have this skewed view because it’s what they see on TV.

You know who else watches a lot of television? Donald Trump. Trump spends his nights watching cable news, and this is clearly where he gets the idea that the America economy is cratering and crime is out of control.

So when Trump talked about “American carnage” he was channeling what he sees on television, and speaking directly to the millions of Americans who get most of their news from television. It may not represent reality, but it is what they see on the TV.

Why Is the Free Market So Foul?

Conservatives love the free market it theory, but hate it in practice.

Conservatives love the free market. That goes without saying. They complain about any government involvement in the economy, any regulation of business, and suggest that excess regulation is stifling the economy. And more often than not they say that the “free market” is the best solution to any public policy problem. Senator Rand Paul said the best way to fix health care is to “try freedom for a while. We had it for a long time. That’s where you sell something and I agree to buy it because I like it. That is how we operate in most of rest of the marketplace other than health care. … We could try freedom [in health care]. I think it might work. It works everywhere else.”

Former Presidential Candidate and publisher of Forbes Magazine, Steve Forbes has gone so far as to say that the free market is a moral system. “Free markets create goods by inciting human ingenuity to overcome obstacles and do business. … Free markets in the real world are a moral system. Think about it. To succeed in a true free market you have to meet the needs and wants of other people. Even if you lust for money, you don’t get it unless you provide something that somebody else wants.”

The basic theory of free and unregulated markets is that people, through free choice, will choose those things that are best for them, and through the cumulative effect of all of these millions of free choices, society will benefit. Adam Smith, the father of modern economics, called this “the invisible hand.” In the Wealth of Nations, Smith said that each individual “intends only his own gain, and he is in this, as in many other cases, led by an invisible hand to promote an end which was no part of his intention. … By pursuing his own interest he frequently promotes that of the society more effectually than when he really intends to promote it.”

It’s a simple and elegant theory, and lies at the heart of the conservative idea of economic freedom. And in broad strokes the theory works. We now live in a world of vast abundance. The shelves of stores groan with consumer products, and we have so much food that we waste a huge amount of it. So, in some regards, we have a free market, and it works wonderfully. But the reality of the modern American economy is that every product from apples to Zyrtec is regulated, every industry from apple orchards to zoos, and every company from Apple Computer to the Zurich Financial Group is regulated, in one manner or another. The level of regulation varies dramatically. Drugs, like Zyrtec, are much more highly regulated than apples, and financial services are more regulated than personal computers. The level of regulation depends on the likelihood and potential for harm to the consumer. Conservatives complain about all of these regulations. They say that the free market is self-regulating, and the American economy will flourish if we just cut back on all of this regulation.

So are there any products without regulation? Is there any market where pure consumer choice controls the production, distribution and availability of goods? And if so, how does it work?

Well, yes, actually there is one free and totally unregulated market in the United States: that unregulated market is what we call the “culture.”

The “culture” is made up of a many components, including books, magazines, movies, music, television, and fashion. The “culture” also includes our collective sense of ourselves as a people. The First Amendment prevents the regulation of the distribution of ideas, which means that the content of movies, music, television, books, and magazines is unregulated. That may seem obvious, but it wasn’t always the case. Up until the 1950’s content was regulated. The main control were postal regulations that forbid the mailing of “obscene” material, and obscene was very broadly defined. This prevented the distribution of pornography, but also prevented the dissemination of some great works of literature, including An American Tragedy by Theodore Dreiser and Ulysses by James Joyce. That changed in 1959 when the publishers of Lady Chatterley’s Lover challenged these postal regulations, and won. The post office could no longer control the content of the mails and publishing changed. And then in 1973, in the case of Miller v. California, the Supreme Court struck down most restrictions on pornography. Not long thereafter the pornographic film Deep Throat was distributed nation-wide, and the multi-billion dollar American porn industry was born. According to some estimates, pornographic material – particularly images of people engaged in a wide variety of sexual activity – accounts for nearly a third of all content on the internet.

Now, in a very broad sense, the American “culture” is the freest and most unregulated market in the country. The clothes we wear, the films and television programs we watch, the music we listen to, are all the product of our own desires. Our culture is the product of nothing but the desires of the consuming public. There is no government control or outside oversight. The only driving force is demand and the profit motive. There is a demand, and someone creates a supply.

And what do conservatives think of this, the only truly free market in the nation? What do conservatives think of the culture? They hate it. W. James Antle III, an editor at conservative magazine The American Spectator, summed it up neatly: “The culture is awash in the raw sewage of vulgarity and avarice.” The director of a conservative policy group in Kentucky wrote a recent editorial about proposed legislation dealing with transgender students, which he said was a product of our “culture’s flirtation with narcissism.” So they seem to hate our culture in general, but what about specific aspects of that culture.

What has our free market culture produced? It has clearly produced books of great literary merit, and movies and music of enormous artistic achievement. It has produced television programs that are thoughtful, insightful, and informative. And then there’s the stuff that people actually buy.

Take music. The free market provides us with every type of music from Appalachian bluegrass to Zydeco, and everything in between. Music stores are largely a thing of the past, but you can download just about anything from iTunes or Spotify, and buy CD’s of every type from Amazon.com. Opera? Check. Classical? Absolutely. Bluegrass? Yep. Contemporary Christian, Indy Rock, smooth jazz? You name it, it’s all there. But what’s at the top? Schlock, nonsense pop, and thuggish rap. So what is the aggregate result of millions of free choices in music? Is it Yo Yo Ma, Winston Marsalis, or Cecilia Bartoli? Nope, it’s Justin Bieber, Kanye West and Miley Cyrus.

And what do conservatives think of the state of American music? Not much. Recently former Arkansas Governor (and former Fox News Commentator) Mike Huckabee criticized President Obama and his wife for allowing their daughters to listen to Beyoncé. Huckabee called Beyoncé’s lyrics “obnoxious and toxic mental poison” and called her husband, the rapper and promoter Jay Z, a “pimp … who exploits his wife.” Beyoncé’s music is wildly popular, but according to Huckabee it’s “mental poison.”

What about clothes. Just about everything is available in stores from bikinis to burkas. (Sorry I couldn’t pull off an “a to z” analogy, but this works better.) And what do people wear? Men wear pants down near their crotch, or t-shirts and oversized saggy shorts that make them look like enormous toddlers. Suits (and belts) are widely available, but few wear them. And women were yoga pants so tight it leaves little to the imagination. The general state of American fashion is pretty dismal.

And conservatives don’t like it one bit. Just recently a Republican state legislator in Montana wanted to ban yoga pants. Last year conservative lawmakers in Florida tried to ban saggy pants. Recently Fox News commentator Geraldo Rivera said saggy pants were holding back young urban blacks and Latinos.

TV? Two words summarize the state of American television. Sex Box. Have you heard of it? The title is pretty descriptive. A couple goes into a box, has sex, and comes out and talks about it with a panel of sex and relationship therapists who discuss the importance of sex in a relationship. So it’s educational. But one supposes the therapists could have the same discussion without the salacious aspect of showing the couple going into the box, and then waiting ten or fifteen minutes before they emerge in matching silk robes.

Conservatives are not amused. The president of “Concerned Women for America” and the director of the “Parents Television Council” took to Fox New to denounce it. “‘Sex Box’ should never see the light of day, or the night for that matter, on basic cable,” they said. “A live sex show is something that one might expect to find on a premium cable network. However, in an affront to all families, WEtv is bringing that content to basic cable and potentially exposing millions of children in the process.” This show, they said begs the question of how far the media will go to get ratings. … [the] immorality ends when the public, more specifically, the viewers say that they’ve had enough.”

So TV is a vast sewer. But we knew that already.

What about movies? Every year hundreds of well made, thoughtful and often moving movies are made in the English language. This year’s Oscars featured an interesting variety of artistic, historical, and even patriotic movies. But what dominated the box office? Hunger Games, Transformers, and the Lego Movie.

There’s no doubt that conservatives understand that the culture is driven by market forces. They embraced the movie American Sniper. For them the box office success of the movie was evidence that America was embracing their values. And when it didn’t win an Oscar they complained about liberal bias. Fox News commentator Sean Hannity tweeted during the Oscars: “AMERICAN Sniper snubbed by liberal hwood Predictable.”

Conservatives were less pleased when Fifty Shades of Grey moved into the top spot at the box office. Conservative commentator Brent Bozell said: “Here’s one obvious sign that we live in a profane world. ‘Fifty Shades of Grey,’ the ‘mommy-porn’ book turned into a movie, complete with its whips and chains and erotic punishment, debuted to far less controversy than “The Passion of the Christ” in 2004.”

Whether it’s hard core pornography, misogynistic rap music, moronic movies, a “liberal” media, or television shows disdainful of religion, tradition, morality and family values: all of these exist because of the demands of the American people. The culture is a perfect free market, and it’s a sewer.
Make no mistake; the free market didn’t debase the American culture. The free market simply gave the American consumer a cornucopia of entertainment options. We debased the culture on our own.

So the only truly free market in the country is “awash in the raw sewage of vulgarity” and proves that “we live in a profane world.” What does this say about free markets? What does this say about the idea that the collective action of millions of choices will produce a socially beneficial result? I would say that the culture is pretty clear proof that the idea of an invisible hand guiding individual choices to create a beneficial social outcome is fallacious, at best. The invisible hand, which is supposed to guide free exchange based on supply, demand, and the profit motive to produce socially beneficial outcomes, has slapped conservatives in the face.

So conservatives love the free market, in the abstract at least, but they hate the only truly free and unregulated market in the country.

Technology Drives Wealth Up

Throughout history technological changes have driven the distribution of wealth upward. What I mean by this is that new technologies often displace lower skilled workers and put more money in the hands of the owners of business, or what Marx called “the means of production.” Here are a couple of examples.

Once upon a time farms employed many dozens, if not hundreds, of people. Animals required care, fields had to be prepared, crops planted and tended, and then harvested. It typically took dozens of people to reap and gather a harvest on just a few acres of land. Until about 1870 a majority of Americans lived and worked on farms, and this was probably the norm across the world. But then farms began to use machinery, at first horse drawn threshers and reapers, but then mechanical tractors, and more and more things became automated. Agricultural employment decline inversely as automation increased. Today farms employ very few people. Most farmers operate huge complex combines that can till the fields and plant the crops in the spring, spread fertilizer and pesticides in the early summer, and harvest the crops in the fall. (I’m talking hear of the large agribusinesses that I grew up around in central Illinois.)

Once upon a time the farmer had to share part of the proceeds from the sale of crops with all the people who worked on the farm. But now the farmer gains all the income from farming and doesn’t have to share with “field hands.” This is not to say that farmers are getting rich, because they still have to pay for equipment, and farming is notoriously fickle and weather dependent. But my point is that money from farming is no longer shared among the farmer and many workers. It all stays in the farmer’s pocket. So the technological change has shifted the money generated from farming up.
Another more recent example – and one that I have personal experience with – involves lawyers and legal secretaries. When I began practicing law virtually every lawyer had a secretary. A lawyer would typically draft a document by hand on a legal pad and give it to the secretary to type. He would then review and revise the document and send it back for final editing. The law is very word and writing intensive, so secretaries were vital to the success of a law firm. Many large firms had more secretaries than lawyers. I worked at a large Seattle law firm where each attorney had a secretary, each section had a secretary, and there was both a day and night secretarial pool. I would estimate that there were just over twice as many secretaries as lawyers.

I began practicing law in the mid 1990’s, just as personal computers came into widespread use. All of my fellow law students used computers and did their own typing. When they got jobs they didn’t have the same need for a legal secretary as an older attorney. And so law firms began to trim secretarial staff. Now it’s common for one secretary to work for two or three attorneys, and they are now called a legal assistant since they no longer spend much time typing. According to one report I found, the legal secretary market has decline by about 10% per year since the mid-1990’s.
Now lawyers do all their own typing and don’t have legal secretaries. They have been replaced by Microsoft Word. And lawyers no longer have to share the money they get from a client with a legal secretary. Granted they have to buy a computer and software, but that’s a fraction of the cost of a legal secretary. So more of the money received from a case or a client goes to the lawyer than the staff. So the wealth accumulation shifts upward. According to studies, lawyer income has been increasing steadily since the late 1990’s.

My final example involved large scale industrial manufacturing, like making cars. There was a Jeep TV commercial from a few years back (I think it was shown during the Super Bowl) that began by showing jeeps being made during World War Two. The factory floor is covered with people, bolting and welding parts onto the vehicle on the assembly line. The ad then shows some scenes with jeeps over the years, then shows the exact same plant, outside of Toledo Ohio, where Jeeps are made today. There are a number of huge industrial robots, but not a single person in view. American automakers make roughly the same number of cars they did in 1950, but with a fraction of the workforce. There are fewer line workers, so more of the money received from each vehicle goes to people further up the line in the company. This is a trend that has played out across the manufacturing sector. Improved automation has been going on for years, but accelerated in the 1980’s with the increased use of industrial computers and robots, and the trend has only accelerated with improved computers and industrial machinery.

In the United States real wages have been stagnant since the late 1970’s, while corporate profits have grown, reaching near record highs in the last decade. One is clearly a product of the other. Fewer workers mean higher income up the corporate ladder, and more profits for shareholders.
The common counter argument is that when one industry fades another takes its place. When, for example, cars replaced horses, far more jobs were created than were lost. People lost jobs working in stables, but new jobs were created in auto plants and auto repair shops. In fact there were probably far more new jobs dealing with cars then old jobs dealing with horses. But there are two things to consider. The first is that there is a time shift. A worker who loses a job in a stable doesn’t walk down to the auto assembly line the next day and take a new job. (A few might, but most won’t.) Second, and perhaps more important, many of the new jobs are at a different skill level than the old jobs, typically a higher skill level. A car mechanic is far more skilled than a stable boy. And not every stable boy can master the skills of an auto mechanic. So everyone who loses their jobs might not find a comparable new job.

Similarly, people argue that as computer programs replaced secretaries, clerks, and bookkeepers, new jobs were created for programmers. But a computer programmer is at a much different skill level than a secretary, book-keeper or clerk. And unlike the transition from horse to cars, only a few hundred computer programmers created software that eliminated millions of secretarial jobs. So even those legal secretaries with the skills to become programmers could not find new jobs in that field.

This trend raises a number of very interesting questions, which I will raise here, and hopefully answer later.

What happens if this trend continues? Will it mean the “end of work” for millions of people? And what to do with those people who are displaced by technology and can’t find new jobs?

What does this mean for income inequality? This trend continues to drive wealth up, further exacerbating income inequality. Is there a point where there needs to be structural changes to deal with this?

I hope to answer these and other question sin the near future. Stay tuned.

The Marbella Index

One of the most common words used by the Republican presidential candidates during the recent debates was “freedom.” They all believe in “freedom.” They want to preserve and protect American’s “freedom.” Freedom, Freedom, FREEDOM!!!

OK, I get it. But they never really explain what that means. What are they talking about when they say freedom? Based on other things they talk about, I think they mean the ability to do whatever you want. You are free when you can do what you want.

If this is what it means to be free, who is free? Who in this world can do what they want?

To understand this kind of freedom I apply what I call the Marbella Index. For those who don’t know, Marbella is a resort on the Spanish Mediterranean coast. It is frequented by rich Russian plutocrats, and tourists from across Europe, though mostly Germans and Scandinavians. The beaches are frequented by overfed Swedes and Germans in tiny speedos sporting their national flag, their Teutonic paunches drooping over skin tight lycra.

In Russia, to be truly free, you have to be a former communist party member, or now the son of a former party member, who got a slightly nefarious deal on a company during the early years of the first Putin administration.

In the rest of Europe all you need is a job, and you have a pretty decent wage and lots of vacation time. France is even famous for its vacation time. There are plenty of beaches on the French Mediterranean, so you don’t see many in Spain. But Germans and Scandinavians flock to Marbella, as well as beaches and resorts around the Mediterranean, from Spain to Turkey across the northern coast, and from Morocco to Egypt on the southern coast (though Islamic extremist and political instability are making those resorts far less popular).

In fact, if you go to fancy resorts around the world the people you see most frequently are Europeans, along with plenty of Australians and a surprising number of New Zealanders. This makes sense around the Mediterranean since it is close to the rest of Europe. But it is surprisingly true throughout the Caribbean, the Pacific and the Indian Ocean, which are all far from Europe. There are plenty of American at Caribbean resorts, but you are just as likely to hear French or German as English. And you’re just as likely to hear that English with a British or Australian accent as an American accent.

I know people will argue that there are so many resorts in the United States that most Americans stay home, and that is certainly true. But Brits go to Bristol, and Germans ski in Bavaria. But the beaches of the world are full of middle class Europeans.

So based on the Marbella Index it’s the Europeans who are the freest people on earth.

Hayek In the Rear View Mirror

Friedrich Hayek is one of the patron saints of modern libertarianism. He wrote a book in 1944, called The Road to Serfdom, that predicted that western societies were going to fall sway to totalitarianism. He said that any level of economic planning would not work and so would require greater and greater government control, until inevitably, the government would completely take over.

It is a theory that is profoundly wrong, as even the most casual observation of the events since World War Two show, but one that still drives a great deal of modern conservative politics. Both Rand Paul and Paul Ryan are fans of Hayek, and both have stated that any government involvement in the economy is doomed to fail.

I analyzed this topic from the book in some detail in a recent article in Alternet. My title was Hayek in the Rear View Mirror, but they changed it to: Big Economic Theory Underpinning Libertarian Economics Is Total Baloney. Their title is more to the point, but mine was more poetic.

Minimum Wage and Unemployment

Republicans consistently say that raising the minimum wage will hurt employment. If that is true it should show up in the overall employment data. If raising the minimum wage hurt employment then unemployment should go up after the minimum wage is raised. So the unemployment rate should be higher in the months after the wage is raised.

The following chart sets out the change in unemployment rate in the months after the minimum wage was changed.

[Here’s a link to a bigger version of the chart: http://thedisappointedoptimist.com/wp-content/uploads/2015/02/Change-in-Unemployment-and-Minimum-wage.pdf]

The national minimum wage was established in 1938. It has been changed 28 times since then. It has been raised 26 times, and lowered 2 times. Unfortunately the Bureau of Labor Statistics does not have data before 1950, so we don’t have records of the impact of the raise in the minimum wage before, but since 1950 the wage has been changed 26 times. It has been raised 24 times, and lowered twice.

If raising the minimum wage forces employers to lay off workers then the opposite should be true. Lowering it should spur hiring. But the scant statistics we have don’t really support this. The minimum wage was lowered from $1.25 per hour to $1.15 per hour in September 1964. The next month the unemployment rate was the same. It went down slightly, from 5.1% to 4.8 percent the next month, then up slightly to 5.0% the month after that. The wag was lowered from $1.60 to $1.30 in February 1969, but in the following three months the unemployment rate remained exactly the same at 3.4%. So, from the two statistically insignificant samples we have, lowering the rate doesn’t have much of an impact on hiring. But two data points are not persuasive.

Turning now to the twenty four raises in the minimum wage. Republicans make the claim that raising the minimum wage as an absolute, without nuance or equivocation. If that is true then the unemployment rate should rise every single time the wage is increased. But this has not happened. From the chart it is clear that the unemployment rate has gone down in many cases, in up in many cases. In the first month after the change, the unemployment rate went down ten times, and up eight times. So employment increased ten times after the minimum wage was increased, but it did decrease eight times after the raise. It stayed the same eight times. So the claim that raising the wage will, absolutely and without fail, lead to rises in unemployment is clearly not true.

One month is not a statistically valid sample, so I looked at unemployment over a three month period after the rate was raised. In most cases the rates jumped around a bit. In nine cases the unemployment rate went down and stayed down over a three month period. In seven cases in went up, and stayed up. In most other cases it jumped around. A few times it went up then down, and a few times it went down then up.

One important point to note: if you look at the unemployment rate charts of any year you will notice that they are constantly moving, going up and down. There are innumerably factors that impact the employment rate. These rates are “seasonally adjusted” so they take in to consideration the increased retail employment in November and December, and the increased construction employment in the summer months.

Based on this data I can say that raising the minimum wage does not cause unemployment. It is a canard. It sounds logical, but statistics do not support the contention.

Does Government Only Worsens the Problems it intends to fix?

“Government intervention never works but in fact prolongs and worsens the problems it is intended to fix.” Senator Rand Paul

I came across this quote recently while doing some research on Republican’s views of “The Road to Serfdom,” by Friedrich Hayek. Hayek is the intellectual forefather of much conservative thinking on government intervention into the economy. Paul’s statement was published in an essay he wrote for The Intercollegiate Review, a magazine for college Republicans. It is available on line at Rand Paul’s Challenge to Students. The essay is a year old, but it seems to encapsulate Senator Paul’s hostility toward the government.

So how accurate is Paul’s statement? Does government intervention make things worse? There is no doubt that government can often be ineffective and bumbling. We see examples in the paper every day. But does that mean that government only makes things worse when it tries to fix a problem?

Let’s think about a couple of examples here in the United States, to test this theory.

After the Second World War, President Eisenhower decided that the nation had a transportation problem, and he proposed a government program to fix it. The problem was that it was extremely difficult to drive from one side of our country to another. Eisenhower had recently commanded a military force that pushed from the shores of France deep into Germany, and done much of that on Europe’s road system. Eisenhower decided that the United States needed something similar, and proposed our interstate highway system. This system is now fully built. Did it worsen the problems of national transportation?

There’s no doubt that highways have created a bunch of unanticipated problems. These range from expanding urban sprawl to the demise of small towns as commerce moved to the nearest Interstate exit. But did the government intervention into the national transportation system “prolong and worsen the problem it intended to fix” as Paul flatly states. Nope, not even close.

Here’s another example. During the creation of the nation the founders felt that it was important for the government to establish a system to protect inventors and creators, to allow them to profit from their creations as a way to spur innovation. And so they included a provision in the Constitution, and Thomas Jefferson established the United States Patent Office. Did the patent office “worsen the problem it was intended to fix”? Not even remotely. The United States has the most dynamic and innovative economy in the world, largely because of the way we protect intellectual property.

But clearly these aren’t the kinds of things that Paul and other conservatives are talking about when they condemn government action. Mostly they’re talking about welfare and economic regulations. So, do these programs make things worse? It’s hard to analyze if you only focus on this country, but far more clear if you look at all the nations of the world.

Put simply, those nations with robust welfare systems have far less poverty than those nations that don’t. Just compare Western Europe with South America, or Africa. And well regulated economies are far more productive than lightly regulated economies. Compare the OECD countries (the 20 richest countries in the world) with most of the rest of the world.

Obviously there are outliers. There are a few remaining communist countries, like Cuba, Burma, Cambodia, and North Korea, and their economies are in shambles and their people in poverty. Clearly total government control of the economy as a means to ameliorate poverty does not work. But modern Western economies, with sensible regulation, are doing extremely well.

I’m sure conservatives will say I’m cherry picking positive examples, or creating a straw-man argument. But Paul said “government intervention never works.” He didn’t qualify it. I’m just holding him to his own words.

One of the knocks against Conservatives is that they are clueless about history. But they don’t seem to know much about the modern world either. Are they really unaware that countries without welfare systems are third world nations mired in poverty? Don’t they realize that countries without effective governments are chaotic failed states? Don’t they ever look at the world and see that countries with welfare systems have far less poverty than countries that don’t? Or don’t they see that the economies of the richest nations are regulated, while unregulated economies are pathetic?

I think that there are at least two causes to this problem. The first is that Fox News doesn’t do much international reporting. So Senator Paul doesn’t ever learn what goes on in the rest of the world. And he knows that his supporters don’t know either, so he can get away with making these statements. The other problem is the idea of American Exceptionalism, which allows conservatives to ignore the lessons from rest of the world. But the rest of the world exists, and it can teach us many valuable lessons. And one of those lessons is that government can fix problems.

The Changing World Economy

The world’s economy has changed dramatically in the last twenty years or so. Computers have changed the modern workplace and software has replaced entire categories of workers. Automation has altered manufacturing and now companies make more products at lower cost and with fewer workers. Globalization has allowed companies to shift manufacturing overseas. International competition and low cost international shipping has created a glut of low cost clothing and consumer goods. And the internet has altered the commercial landscape, and internet merchants, like Amazon.com, have displaced brick and mortar stores in many categories.

I would hazard that the world’s economy has changed more in the last twenty years than in any previous twenty year period. These economic changes have caused a number of other changes in the economy, in politics, and in society.

The first and most obvious changes are in employment and the modern workplace. Computers and software have eliminated millions of typists, secretaries, clerks, bookkeepers, draftsmen, and many other careers. Many people lament the loss of manufacturing jobs to outsourcing and overseas competition, but far more jobs have been lost to automation. Most people may not realize that the United States is still the world’s largest industrial manufacturing nation, but we make more products – when measured by value – than ever, but we do it with far fewer people. From the end of World War Two until the late 1990’s, manufacturing employed between 15 and 20% of the U.S. workforce, but since 2000 than number has slipped to just under 10%.

These changes in employment are a large part of the reason that economic recoveries in the last two decades have been so shallow and slow. There are fewer and fewer jobs, and often, when a slowdown hits, a company will lay off workers and incorporate new computers or software or automated equipment, and then when the economy recovers the jobs don’t return. This means that overall employment rates are going down, and it also means that good paying jobs are harder and harder to find. And this change in the structure of employment accounts, in part, for the growing disparity between rich and poor. A company that is selling as much but with fewer employees has more money for executives and shareholders. And so the gap between rich and poor widens.

These changes in employment and the overall changes in the economy are having a profound impact on society. Young people have fewer opportunities, and a growing sense of disillusionment springs from that. Youth unemployment is high and this often leads to a variety of social ills like increased drug use. Single motherhood is partly a product of the fact that in some poor communities there are fewer and fewer men with stable jobs and good future prospects, so more and more women chose to be single mothers. But single motherhood is also a major contributor to poverty. So single motherhood is both a symptom of the changing economy, and a major contributor to poverty.

These changes in employment trends are also having an impact on politics. Young people are frustrated and dislocated, and older people see these economic changes and are concerned for the opportunities of their children and grandchildren. People in the job market have come to learn that they are fungible, that they can and will be replaced by business owners who only care about the bottom line. People are frustrated and feel dislocated and adrift, and so they look for answers. Both the Occupy Wall Street movement of a few years ago and the rise of the Tea Party are a result of economic anxiety. Those with clear and simplistic answers have a receptive audience. Hence the rise of the Tea Party. Their answer is that every economic problem is and was caused by liberals and liberal policy, and so their solution is to stop, by any means, liberal policies and liberal politicians. This has added bitterness with an ugly undertone to the already fraught political environment.

These economic problems are not just happening in the United States, they are happening around the world. Economic growth has been stagnant in most of the developed world. Believe it or not, the US is one of the strongest economies in the world. You wouldn’t know that from watching the news, where it’s all doom and gloom, particularly on conservative and business news, but most of the developed world is in a period of extremely slow growth and austerity. And China, which has been growing significantly in the last decade, has had growth slowed dramatically in the last couple of years. It also turns out that much of China’s growth is due to government spending and not the growth of the Chinese private sector.

Recent riots and political instability across the globe are due, in no small part, to these economic changes. The clearest example of the connection between economic change and political instability is the Ukraine. Recent protests started when the Prime Minister rejected a trade pact with the European Union and instead signed an agreement with Russia. The protest that are threatening to destabilize the country are literally over national trade policy. The people see openness and trade with the West as the best chance for economic prosperity, and see alignment with Russia as an economic dead end.

There’s also little doubt that the Arab Spring of a few years ago – and that continues in mutated form in Egypt and Syria today – is about economic opportunity. Because of demographic changes, an exploding birth rate and improved medicine, the Arab nations skew very young, and because of technological changes noted above, have very high youth unemployment. The protests were initially sparked by the death of a fruit merchant in Tunis, Tunisia. He was a college graduate who was working as a street vendor because he couldn’t find anything better. He committed suicide (by self-immolation) after being hassled by police and local officials. His frustration burned over, literally. He felt that the people who were hassling him should actually be helping him and those like him. His fiery protest struck a chord with young people across the region because they all felt much the same frustrations.

In response to this worldwide trend and worldwide turmoil, we have politicians in the US who don’t even seem to recognize that this is happening. The vast majority of American politicians never mention these worldwide trends. I don’t know how you can address a problem when you don’t seem to recognize the cause. Certainly there are many contributing factors to our current economic problems, and there are many possible solutions. It is possible that some conservative ideas may be part of the solution, but I’m skeptical when politicians don’t address the broader worldwide trends, or specifically how their proposed solutions relate to the causes of our economic problems.

Another point to consider is that in this rapidly changing worldwide economy, we are actively competing with nations around the world. This should be kept in mind when we talk about possible solutions to our economic problems. Conservatives say that the solution to our current economic malaise is to remove government from the equation. That might be true, but when you look at those countries around the world that have the strongest economies, like China and Germany, they have a great deal of government involvement in their economies. Perhaps in theory it’s a good idea to let businesses operate uninhibited in the free market, but in the real world (and not the fantasy world in Fredrick Hayek and Rand Paul’s head), governments are heavily involved in the economy. How is an American company supposed to compete on an even footing with a French or Chinese or German company, when those companies have government support? Perhaps in the abstract the solution is to remove government support in all of these other countries, but that is simply not going to happen. To suggest otherwise is a naïve pipe dream. So how does limiting government help those companies competing with Chinese companies that are backed by the Chinese government?

So we have politicians who offer solutions that have little or no relation to the actual causes of our economic problems. And we have politicians trying to end government support for business at precisely the same time when our main worldwide competitors are ramping up government support.

We also have politicians who are spending an inordinate amount of time on issues that have absolutely no bearing on the realities of our economic problems. We have one group of politicians who are absolutely convinced that America’s economic decline is the product of America’s supposed moral decline, so they propose laws that they believe will reverse this supposed decline. Laws like restrictions on abortion or broadening gun rights. Meanwhile the leaders of other countries are actually addressing economic issues. They are building infrastructure to put people to work and to move goods around the country. They are increasing support for basic research, and spending money to improve their nation’s education. But we’re not. We’re fighting over trivia.

Most people seem to understand this. But it seems that most politicians don’t. They talk as if the policy solutions from the 1980’s will work to solve the problems of the new world economy. The reality is that 1980’s solutions won’t solve the problems of the 21st Century.

Does raising the minimum wage effect employment?

One way to determine this is to look at national employment data after the minimum wage was raised.

The minimum wage has been changed 28 times since it was first instituted in 1938. It was lowered twice, in 1964 and 1969,and a couple of times in the 1950’s there were corrections relating to farm labor and manufacturing labor. See the Department of Labor web site: http://www.dol.gov/whd/minwage/chart.htm

Unfortunately the Bureau of Labor Statistics did not start keeping good comprehensive employment data until 1950, which means that we can’t adequately analyze the first couple of raises. But we do have good data since 1950.

A rough stand in to determine the rate of employment is the unemployment rate. If raising the minimum wage effects employment we should see that, to some degree, in an increase in the unemployment rate after the wage is raised.

To make matters relatively easy I look at the month the rate was changed, and the three months after the minimum wage was raised:

Min Wage Unemployment Table

The unemployment numbers are from the Bureau of Labor Statistics Database available at:
http://data.bls.gov/pdq/SurveyOutputServlet

Since 1950, the minimum wage has been raised 24 times. The unemployment rate went up 8 times in the month after the wage was raised, went down ten time, and stayed the same six times. So, the unemployment rate went down more times then it went up. The minimum wage was actually lowered twice, in 1964 and 1969. Both times the unemployment rate stayed the same.
So much for the idea that raising the minimum wage hurts employment.