Governor Bradford recorded in his diary that everybody was happy to claim their equal share of production, but production only shrank. Slackers showed up late for work in the fields, and the hard workers resented it. It’s called “human nature.”
“Americans should not be subsidizing the richest family in America and Walmart workers should not be living in poverty,” Sanders tweeted last month, castigating the big box retailer for not paying all workers $15 per hour. “Walmart’s greed has got to end,” he added.
“More importantly, if you care about improving the quality of life and living standards over time, the essential question is always about creating broad-based, sustainable economic growth. What are the conditions that are most likely to help the economy get bigger, stronger, and more resilient? At the top of the list is a government which promulgates simple, predictable, and widely enforced rules; spends within its limits and doesn’t pursue arbitrary trade wars and military interventions; and doesn’t bog down the future with an ever-increasing mountain of debt that tamps down growth and freezes out investment. Near the bottom of the list is something that is part of Sanders’ policy repertoire: Announcing bold new plans (Medicare for All! Free College for All!) without even pretending to know how to pay for them.“
“Without economic growth, there is no wealth to share.”Johan Norberg
Lessons for America?
Welcome to another edition of Friday’s Philosophical Foray beyond Healthcare!
One of the most important history lessons in the power of economic freedom to alleviate poverty and improve the lot of the ordinary citizen did not occur during the industrial revolution in America. It has its roots in a relatively obscure Swedish leader & political philosopher. He was a Finnish-Swedish clergyman, writer, and political philosopher, whose ideas and advocacy pre-dated that of Adam Smith.
The freedom of Swedish people to pursue self-determination which empowered individuals to trade, act and associate voluntarily with others was championed by the words & deeds of Anders Chydenius (1729 – 1803).
After his death in 1803, Chydenius’s libertarian ideas where perpetuated by the Aftonbladet news publication in Stockholm, a news outlet started by Lars Johan Hierta, which was instrumental in spreading the message of economic freedom against the guilds and mercantilism which dominated Swedish economic policy under the King.
In 1840, the new Finance Minister Johan August Gripendstedt, the architect of Sweden’s new market economy, continued the market reforms. His policies ignited economic expansion and growth based on free trade, sound monetary policy and modicum of govt regulations.
Between 1850 – 1950, Sweden’s per capita GDP increased almost seven-fold. Infant mortality improved by 86% and life expectancy increased by 26 years! By 1950 Sweden was one of the richest developed countries and had one of the most open and deregulated economies in the world; with tax rates LOWER that the United States and most European Countries.
Until 1960, Sweden had low taxes, minimal gov’t intervention in the economy, free trade and strong private property rights.
To explore this subject in detail, please watch Johan Norberg discuss Sweden’s rise to prominence in his video below.
And now for the meaty post of the week! Seriously, this is a fantastic piece by The Grump Economist, John H. Cochrane, senior fellow at The Hoover Institute.
Here’s a sneak preview:
What’s causing the big drop in the stock market, and the bout of enormous volatility we’re seeing at the end of the year?
The biggest worry is that this is The Beginning of The End — a recession is on its way, with a consequent big stock market rout. Is this early 2008 all over again, a signal of the big drop to come?
Maybe. But maybe not. Maybe it’s 2010, 2011, 2016, or the greatest of all, 1987. “The stock market forecast 9 of the last 5 recessions,” Paul Samuelson once said, and rightly. The stock market does fall in recessions, but it also corrects occasionally during expansions. Each of these drops was accompanied by similar bouts of volatility. Each is likely a period in which people worried about a recession or crash to come, but in the end it did not come.
Still, is this at last the time? A few guideposts are handy.
Many state already have increased minimum wages, and the “Fight for $15” crowd wants a nationwide increase.
So let’s explain, for the umpteenth time, why this is misguided.
We have lots of data and anecdotes to review, so let’s begin with some scholarly research from Europe.
This paper estimates the long-run impact of youth minimum wages on youth employment by exploiting a large discontinuity in Danish minimum wage rules at age 18 and using monthly payroll records for the Danish population. …On average, the hourly wage rate jumps up by 40 percent when individuals turn eighteen years old. Employment (extensive margin) falls by 33 percent and total labor input (extensive and intensive margin) decreases by around 45 percent, leaving the aggregate wage payment nearly unchanged. Data on flows into and out of employment show that the drop in employment is driven almost entirely by job loss when individuals turn 18 years old.
One of the most fascinating discussions I’ve ever heard about socio-economic & socio-political issues.
Proof that honest discussions, which generate better understanding, can happen when we view different opinions as coming from different vantage points rather than as “the opposition.”
Another explanation for stagnant wages is increasing market power for a dwindling number of corporations: the fewer corporations there are competing for labor, the more able they will be to negotiate down wages. In the book “The Captured Economy,” Niskanen Center scholar Brink Lindsey and Johns Hopkins professor Steven Teles argue that “regressive regulation”––or regulation supported by established corporate interests in order to drive out competitors––has contributed to this phenomenon. As regressive regulation limits the number of corporations, it means the fewer larger remaining corporations can bid down wages.
The progressive proposal for increasing wages in a labor market in which a few corporations have dominant market power is to raise the minimum wage. Unfortunately, minimum wage increases exacerbate the problem of the concentration of market power for big corporations. According to a Harvard study released this past April, minimum wage increases lead to smaller businesses closing down, hence hurting people trying to start enterprises and advantaging wealthier, more established players. Not to mention that the minimum wage hurts the poorest members of society trying to enter the labor market. Minimum wage hikes are not the way to increase low-income wages, but free marketers need to present their own remedies.
The solution to the high level of market power of a handful of companies is to empower small businesses to enter the market. And government regulation disproportionately harms small businesses: according to a Lafayette University study, the regulatory burden per worker is 28 percent higher for companies with fewer than 500 workers than for companies with more than 500 workers. Specific, targeted reform directed at regulations that have especially high fixed costs and create barriers to entry would go a long way in empowering workers and new entrepreneurs.
Occupational licensing laws are an excellent example of a regulation that depresses the wages of low-income people by imposing high fixed costs, and they have exploded over the past half-century. In 1950, only five percent of jobs were subject to licensing requirements. Now, that figure is closer to 30 percent. According to conservative think tank Goldwater Institute, occupational licensing requirements seriously depress low-income entrepreneurship, hence both holding more people in poverty and preventing the entry of new, small firms…Repealing these regulations would both directly increase the wages of low-income workers while also easing the process for firm entry into the market.
Furthermore, the Dodd-Frank Act is another package of regulations that has seriously weakened small businesses. The burden of the regulatory rules in Dodd-Frank has disproportionately hurt community banks, and while community banks only form 20 percent of all banking in the United States, they are responsible for 50 percent of small business loans. Therefore, as community banks die off––almost 20 percent of them have shuttered since Dodd-Frank’s implementation––would-be small business founders lose access to capital. This loss of access to capital perpetuates the problem of the shrinking number of businesses in the market as a whole. Therefore, repealing Dodd-Frank would enable for more firm entry and a more dynamic labor market, addressing the decline in business formation partially responsible for wage stagnation.
Increased competition in the labor market for workers is a viable solution to slow wage growth that conservatives must champion. Free marketers cannot afford to surrender the issue of wage stagnation to progressives championing more government intervention, and present their own liberty-minded solutions to raise the wages and living standards of low-income workers.