Monthly Archives: June 2007

Income Inequality

Mario Rizzo has written a great letter to the Financial Times:

Sir, Lawrence Summers’ article “Harness market forces to share prosperity” (June 25), on reducing income inequality, leaves several critical questions unanswered.

First, why should we care that income inequality is increasing? Was the previous distribution of income more just, simply because it was more nearly equal? Second, neither Professor Summers nor anyone else has a comprehensive understanding of the causes of recent trends in income distribution. In general, it is a bad idea to look for solutions to a “problem” whose causes we do not understand. Third, the whole idea of “sharing prosperity” seems to imply that prosperity is some kind of aggregate to which we all have some claim, much like members of a family. What justifies looking at society as a family? If it is, Prof Summers can just send me a monthly cheque without the need for legislation.

Finally, Prof Summers uses a shameful rhetorical trick. By suggesting a “solution” that steers a middle ground between excessive regulation and doing nothing (as if we do not redistribute income now), he appears to be very reasonable. Perhaps it is even more reasonable, however, to think through the rhetoric of increased redistribution before inventing new policies.

Mario J. Rizzo
Department of Economics
New York University
New York, NY 10012, US

HT: Don Boudreaux

Everyday Econ is Family Friendly

QandO points to a site that has developed a blog rating system in an apparent attempt to generate traffic. In any event, here is this blog’s rating:

Online Dating

Minimum Retail Pricing

The New York Times reports:

Striking down an antitrust rule nearly a century old, the Supreme Court ruled on Thursday that it was not automatically unlawful for manufacturers and distributors to agree on minimum retail prices.

The decision will give producers significantly more, though not unlimited, power to dictate retail prices and to restrict the flexibility of discounters.

The attempts to prevent manufacturers from setting minimum retail prices are misguided. Greg Mankiw previously explained this here:

… some economists defend resale price maintenance on two grounds. First, they deny that it is aimed at reducing competition. To the extent that Superduper Electronics has any market power, it can exert that power through the wholesale price, rather than through resale price maintenance. Moreover, Superduper has no incentive to discourage competition among its retailers. Indeed, because a cartel of retailers sells less than a group of competitive retailers, Superduper would be worse off if its retailers were a cartel.

It is Bryan Caplan, however, who summarizes my feelings on the issue:

Since I’m what Larry White of NYU … calls “the ‘antitrust crazies’ who want to repeal of [sic] all antitrust laws,” you know where I stand.

Indeed.

I, Pencil: iPod Edition

Hal Varian explains.

Secret Ballots

The USA Today reports:

Senate Republicans on Tuesday blocked a bill that would allow labor unions to organize workplaces without a secret ballot election.
Democrats were unable to get the 60 votes needed to force consideration of the Employee Free Choice Act, ending organized labor’s chance to win its top legislative priority from Congress.

The final vote was 51-48.

The outcome was not a surprise, with Senate Minority Leader Mitch McConnell, R-Ky., saying for months that he would stop the legislation in the Senate. The White House also made it clear that if the bill passed Congress it would be vetoed.

The House passed the bill in March. Democrats and labor unions pressed for a vote in the Senate in hopes of rallying their voters in the 2008 elections, where they hope to win the White House and increase their majorities in the House and Senate.

[...]

The legislation was a litmus test vote for organized labor and businesses, strong supporters of Democrats and Republicans respectively. “Today’s vote shows us who is standing with workers and which politicians are in collusion with corporate America to destroy the middle class,” Teamsters President Jim Hoffa said.

This bill would never have passed and even if under some strange circumstances it did pass, it would have been vetoed. In other words, there was absolutely no chance of this bill ever becoming law. It defines what I loathe about the political process: symbolic votes. Hoffa’s comments essentially sum this up.

Even more startling were the comments made by John Edwards:

Union membership can be the difference between a poverty-wage job and middle-class security.

Does Edwards truly believe this?

Nothing has been done to impede unionization through this process. The vote upholds the status quo (which seemed to work very well for unions for so long).

Nevertheless the Edwards-type rhetoric is often spewed as though it were truth when, in fact, it is far from it.

Let’s look at an example. NPR reported not long ago the story of Renee Brown:

Renee Brown works assembling the Camry — the nation’s best-selling car. She puts in seat belts and cup holders at Toyota’s plant in Kentucky horse country.

Brown grew up in Beattyville, a tiny, struggling town in the state’s Appalachian coalfields. The town doesn’t have many good jobs today.

Brown previously worked as an assistant manager at Dairy Queen, where she made $20,000 annually. Six years ago, she got a job at Toyota.

Now, Brown makes $70,000 a year — more than twice the average manufacturing wage in the area.

The United Auto Workers have tried to crack the Toyota plant since before it opened. Last spring, they opened their own organizing office just down the road.

But Brown says that Toyota’s wages are so close to the union’s, she doesn’t see the advantage.

I do not wish that unions were illegal and I do not discount the success that they have had in raising wages through collective bargaining. However, to claim that one should be able to go from poverty to middle class simply by joining a union is preposterous. Unions membership is down, but it is not because it is any harder to form a union than it was in the past, it is simply because unions are becoming increasingly obsolete. Ironically, they are becoming obsolete because businesses are replicating Henry Ford and paying efficiency wages.

The example above is not merely anecdotal. It is true that companies would prefer to have non-union workers, but the best way to achieve this is to eliminate the incentive for employees to unionize and thus increase their wages and benefits.

Unfortunately, as Edwards’s comments illustrate, the Marxist belief in the surplus value of labor and exploitation persists to this day.

UPDATE: Greg Mankiw weighs in:

I have no doubt that making it easier for workers to form cartels would raise wages–at least for those workers in the cartels. But demand curves slope downward.

Moore Sicko

David Denby writes in The New Yorker:

In each country, Moore interviews doctors who speak proudly of how well their country’s system works. But the candor of these doctors is no more impressive than that of the corporate spokesmen Moore has confronted in the past. No one mentions the delays or the instances of less than first-rate care. We find out that a doctor in Great Britain makes a good income (about two hundred thousand dollars), but not how medical care in, say, Toronto might differ from that in a distant rural area, or how shortages may have affected the quality of Cuban health care. Moore winds up treating the audience the same way that, he says, powerful people treat the weak in America—as dopes easily satisfied with fairy tales and bland reassurances.

UPDATE: Michael Moynihan also highlights Denby’s review and points to pictures that are worth more than 1000 words regarding the Cuban health care system.

The Forgotten Man

In his review of Amity Schlaes’s The Forgotten Man, John Updike writes:

The impression of recovery–the impression that a President was bending the old rules and, drawing upon his own courage and flamboyance in adversity and illness, stirring things up on behalf of the down-and-out–mattered more than any miscalculations in the moot mathematics of economics.

This statement is extremely telling. Under no circumstances should the government have the right to expand its influence over the economy simply to demonstrate its ability to do something. FDR expanded the scope of government, challenged the Constitution, and perhaps prolonged the Great Depression.

Regarding the New Deal, Robert Higgs wrote in Crisis and Leviathan:

“The [National Recovery Adminstration] organized mass demonstrations of public support, including a parade of 250,000 people in New York. Billboards, posters, buttons, and stickers displayed the NRA’s messages. Volunteer boosters, like the Four Minute Men of the wartime Liberty Bond drives, spoke in support of the great crusade. Radio stations and newspapers fell, or were driven, into line. Not since the war had there been anything like the outpouring of hoopla.”

This was all done for show and was blatant propaganda. I guess John Updike wouldn’t have it any other way.