I Thought The Sequester Was Supposed To Hurt!

I have to admit I chuckled when the WashingtonPost WonkBlog declared, “The economy is holding up surprisingly well in a year of austerity.” Of course, this isn’t that surprising to those of us who never really bought into the sequestermongering. But it’s nice to see even the liberal, mainstream, doom-peddler types admitting that the economy isn’t acting very doomy right now:

Housing prices rose faster over the past year than they have in the past seven, according to data out Tuesday. Consumer confidence hit its highest level in five years. The stock market rallied another 0.6 percent as measured by the Standard & Poor’s 500, leaving it just short of an all-time high reached last week. And the national retail price of gasoline fell for six days straight through Monday and is down 16 cents a gallon since late February.

Since it never shows up, the inevitable pain of austerity keeps getting pushed back. The world didn’t collapse on New Year’s Day because, well, the spending “cuts” were delayed two months and the tax jumps took a little while to get figured into people’s paychecks. The world didn’t collapse on March 1 because, well, the departments would take awhile to adjust to the changed budget of the sequester. Now the pain is apparently delayed until later this year, or maybe even next year!

(Maybe the only thing surprising about the sequester is that the experts are so surprised. How long before “sequester doom” becomes the left’s “hyperinflation”?)

Is Spending Always the Answer?

It certainly may be true that the pain of the sequester will eventually ricochet through the economy, but it sure looks like the Keynesians have a pretty unfalsifiable position. When we increased spending and the economy was still bad, the response was: Oh, it was worse than we thought! We should be spending more! Now when we decrease spending and the economy gets better, the response is: Oh, it wasn’t as bad as we thought! But it would be even better if we were spending more!

Again, it’s not impossible for those positions to be true. But to a non-Keynesian it sure feels like they’re spinning any circumstances through their existing bias to justify more spending.

What About the Tax Increases?

Of course, conservative fiscal hawks have their bias problems, too. Tax increases are always supposed to be bad, but in January the payroll tax for all working Americans and the income tax for rich Americans both returned to previously higher levels. And what happened?

The deficit shrunk faster than expected! The economy is still adding jobs! Despite all that rhetoric about not raising taxes on wealthy job creators, apparently we are nowhere near that part of the Laffer curve where increased taxes leads to lower revenue! (Not that this should be a surprise; the economy had healthy periods with those exact tax rates in the 90’s.)

But conservatives still have plenty of conservativey explanations for the healthy economy, like the huge boom in oil and gas output. We could even speculate that some of the limited government expenditures are reducing its influence over the private sector and leaving more room to grow, although I doubt the marginal differences here would be enough to noticeably offset the short-term effect of the direct missing government dollars.

Conservatives have a big excuse waiting in the wings next time the economy turns sour, too: Obamacare (indeed, many conservatives aren’t even waiting). Any dip in the stock market or rise in inflation or slowdown in job creation will be blamed on the disincentives created by that giant healthcare legislation, and in some cases, they may actually be right. In a complex economy, both sides are pretty good at spinning both good and bad news as evidence that strengthens their pre-existing positions!

As for me, I’m hesitant to put increased confidence in any of my left-right biases about the effects of taxing and spending based on the economy’s post-sequester behavior so far. But the surprise of the experts does increase the confidence in my bias that those experts are overconfident in their ability to predict effects, not only of the stimulus and the sequester but also of a lot of the other interventions (a.k.a. reforms) they’re so fond of proposing.

The Case For Fishing Regulation

I read a book by Callum Roberts called The Ocean of Life: The Fate of Man and the Sea. I read it because I’m not afraid of facts that might support positions I oppose, even though it’s basically an environmentalist tome about how we’re destroying the ocean through overfishing, climate change, chemical pollution, plastic dumping, habitat destruction, invasive species, noisy ships, and a few other things I don’t remember. It’s almost enough to make you wonder how the ocean is still around, tempting you to believe in what the theologians call “common grace.”

These things don’t “keep me up at night” or “scare the pants off me” like they do the author, partly because I suspect some of those bad things cancel out, partly because I have more faith in the general size and resilience of the ocean, and partly because I have more faith in the ability of markets to respond to incentives to reverse and preserve it (and partly I suppose because of more faith in common grace).

But I found the chapter on overfishing very interesting. I had stumbled on info about overfishing in the past, but I had never seen the case presented so starkly and fully. Apparently we’ve been removing fish from the ocean so much faster than they’re being replaced that it’s starting to show pretty badly; despite all the huge advances in technology and productivity in the last hundred-plus years we’re catching far fewer numbers of a whole bunch of species simply because there’s so few of them left.

To catch the most fish in the long run, you should catch at a rate no quicker than the fish are replenished. Even though it might be easy to catch twice as many fish in one year, if you fish at that rate for too long, you are “depleting” the “fish stocks.” There won’t be as many fish left to reproduce next year, and you’ll have fewer fish to catch in the future – killing the proverbial goose that laid the golden egg.

But even if you’re smart enough to leave some easy fish alone this year as an investment that will pay off later, you don’t own the ocean, and you can’t really stop someone else from coming along to take extra fish now for greater short-term profits – even though it diminishes the long-term profits for everyone who’s trying to save those short-term profits for later.

This is a sort of market failure that economists call the “tragedy of the commons,” and I think it’s a reasonable case for some sort of government regulation – perhaps in the form of limits on how many fish are caught each year. There are apparently cases of governments doing that sort of thing and seeing some sorts of successes.

Part of the problem is that no one really owns the ocean, which is hard to do anyway because the water’s always moving, so it’s harder to have the property rights that give people the incentive to consider long-term profits over short-term profits. Callum’s book does mention some government efforts to establish private ownership in the fishing industry, and he hinted at its success, though he expressed skepticism at its broader potential. (I’m a little more biased to be optimistic that it could work quite well, but I doubt it’s a workable solution for the whole ocean.)

I can imagine a self-correcting fish market that would not require government intervention. As depleted fish get harder to find (it’s very hard to kill off all of them), their price goes up until demand drops, allowing the stocks to be replenished until they are plentiful enough to be caught again at a lower price. But the market has produced innovations that allow us to keep finding fish faster than price signals affect their demand, so if self-correction has potential, it hasn’t kicked in yet; supposedly we’ve already “reached a point where there are, by weight, more ships in the ocean than fish.”

There is also potential in private fishing in fish ponds on land, and I could imagine prices favoring them once fish finally get too hard to find in the ocean. But Callum claims that most of these fish are fed quite inefficiently from smaller fish from the ocean, so that’s not really any more sustainable. Though I wouldn’t be surprised if the industry figures out how to keep the entire food chain in the ponds.

In short, I see a lot of potential ways for the market to keep fish around even if we keep taking them out of the ocean at what is currently unsustainable levels. But due to what seems to be very obvious negative externalities, I also don’t have a problem with governments trying to help things along with quotas, even as I expect the quotas to often be affected by industry lobbying (and they’d be incorrect due to lack of knowledge anyway even without the lobbyists).

But as far as government regulations go, I don’t think the unintended consequences of fish quotas can get that bad. If they’re set too high (as Callum believes some certainly are), then it won’t be any worse than not having any at all. If they’re set too low, the fish stocks would just replenish so much that they could be adjusted later – it’s only temporarily adding to the public good. Yes, the government is limiting short-term profits, but since the fishers don’t own the fish anyway, that’s not much of an intrusion into personal liberties.

I’m probably missing some things from both sides, and I’m definitely no expert on fish, but these are my thoughts after reading that book and thinking a bit about it.

The Case Against The Case For Drones

Kenneth Anderson has an essay in Commentary called “The Case For Drones,” arguing that conservatives should accept drones as effective, moral, and basically awesome, and that any conservative who doesn’t is a kooky isolationist. I suppose some drone pushback from the neoconservative wing was expected after Rand Paul grabbed the spotlight for the libertarian wing a couple months ago, but I’m not sure I’m convinced by Anderson’s case.

To be fair, he makes some good arguments against the weaker, more tangential anti-drone claims, such as the hazards of remote impersonal killing (he asks how is it any less impersonal than an old-fashioned pilot dropping bombs on things he can’t see, and says we still need ground contacts for drone-able countries), or the slippery slope that killer drones will soon be circling London or Paris (he says we only need them in countries with weak governments that can’t control their insurgents). But those kinds of things were never my real problems with our drone policy. Regarding the heavier claims, my anti-drone bias remains skeptical.

Are Drone Strikes Effective?

Anderson argues against the claim that drone strikes are counterproductive because the resentment of civilian casualties creates more militants for every one we take out. In a response that seems bizarre to me, Anderson claims that “village-level resentments fueling recruitment… matters far less in terms of war fighting when the United States no longer has infantry in those places.”

Maybe I’m missing something, but I thought we were striking militants because they were planning attacks against the United States, not because they might attack our nearby soldiers. So, hey man, villagers might join al-Qaeda after we drone-kill their civilian relatives, but it doesn’t matter because we’re getting our troops out of there anyway and sending them back home, which is actually the place those new members are plotting to attack. What?

Anderson also seeks to downplay how much Pakistani citizens hate the drone strikes, apparently putting more trust in something a soldier “remarked” to him than the actual data, which he also misrepresents:

Do Gallup polls of the general Pakistani population indicate overwhelming resentment about drone strikes—or do they really suggest that more than half the country is unaware of a drone campaign at all? Recent polls found the latter to be the case.

There was a Pew poll indicating that “just over one-in- three Pakistanis (35%) have heard about the drone strikes,” but Anderson conveniently leaves out the rest of the details: “Nearly all (93%) of those who are familiar with the strikes say they are a bad thing.”

Instead, Anderson takes the time to make red-herring arguments against ever fearing blowback, because, hey, if George McClellan hadn’t been replaced because he was too concerned about blowback, “the Union would have lost the Civil War.” Ah, so we point out how different the global war on terror is from traditional warfare to defend the necessity of drone strikes, but we’ll draw random historical parallels to downplay the arguments against them. What?

If anything, I might argue that blowback is more likely from arbitrary targeted killings that drop out of the sky into normal life and accidentally kill civilians than it is from the sort of traditional bombing of countries at declared war. So I don’t think Anderson has made a convincing case that the drone strikes are not counterproductive.

Continue reading The Case Against The Case For Drones

Everything You Need to Know About Last Week’s News #45

In reverse order of importance:

O. J. Simpson was in the news for some reason or other.

CORRECTION: That one spot on the planet did NOT reach 400 parts per million of carbon dioxide the previous week. Apparently this number is a little more “calculated knowledge” than I thought. No wonder the entire global ecosystem didn’t collapse yet!

Hundreds of women underwent double mastectomies. One of them was named Angelina.

The CDC discovered that over half of public swimming pools have fecal matter in them. Well, duh. You should see what’s in the ocean.

We learned that two months ago NASA spotted the brightest lunar meteor explosion ever recorded. NASA also broke its distance record for off-planet driving, although Curiosity still has about a mile to go to beat the socialists.

A tornado ripped through north central Texas and killed half a dozen people. Fortunately, however, tornado deaths this year are running well below the average of even recent years.

Abortion provider Kermit Gosnell was sentenced to life in prison for killing babies after delivering them alive in extremely unsanitary and dangerous conditions.

North Korea launched some short-range missiles into the sea, which news accounts say is actually “fairly routine” and “not uncommon.” So Kim is still wiling to talk big and waste weapons to keep South Korea and the US on their toes but still not yet willing to actually do anything stupid.

Things are getting worse in socialist Venezuela, what with rampant inflation, violent crime, and shortages of goods. I wonder if the recent plunge in US oil imports isn’t helping.

The federal government took a bigger scandalous beating last week. Apparently the IRS targeting of conservative groups was wider than previously thought, and even involved asking questions about what books people were reading and what kinds of prayers they were praying. Also the person in charge of that division is now in charge of the Obamacare division, which actually kinda justifies conservative fears about the IRS now being involved in healthcare, although on the other hand said person was appointed during Bush’s term, so how anti-conservative can she really be? Anyway, while all this was going on we also learned that the Department of Justice secretly subpoenaed two months of phone records from the Associated Press in response to a whistleblower leak that really did not threaten national security. Good times!

Is The Government Already Tracking All The Things?

If you’ve read my blog for any length of time, you know I’m skeptical of a lot of what the government does, but I’m also skeptical of a lot of the conspiracies about the government, too. One popular conspiracy is that the government is tracking and recording all electronic communications of US citizens – emails, phone calls, texts, and everything else, and storing it all in a giant NSA data center in Utah. Statements by former officials, rumors of backdoors in social networks, and other assorted revelations are all counted as evidence.

Now I’m very concerned about government overreach and invasion of privacy, but I’m not convinced the government has total surveillance (yet). Nevermind the assumption that the government is competent enough to either keep up with every new technology company and force them to comply without any of them ever spilling the beans, or advanced enough to sniff and decode all the wireless packets. My main evidence for this is the steady stream of overreaches involving the government trying to get information it didn’t have already!

The latest, of course, is the secret Department of Justice subpoena of Associated Press phone records from Verizon. We’ve also recently learned about the FBI reprogramming someone’s air card so they could track it. And Google and Twitter have started releasing the numbers of record requests they get from the US government, among others.

Certainly these are all troubling invasions of privacy, but the very fact that privacies had to be invaded in these ways suggests that the Total Invasion Of Privacies isn’t happening already.

Now some will say that the NSA stores it all but the other agencies don’t have access to it, or that they do but they can’t use it in court so they still have to look like they got it legally. But aren’t many of these secret subpoenas and warrantless tapping and so forth illegal anyway, and part of what makes them so controversial? Besides, if the government tracks everything but doesn’t tell anyone or use it, what’s the point? (Well, we would still be at risk for the Oops Cost.)

I wouldn’t put a whole lot of confidence in my position, and it’s probably prudent to assume that your digital communications are always being monitored. But I would love to hear a better explanation for what seems to be a big hole in that logic.

Big Government Makes Scandals Inevitable

Scandals are beginning to engulf the Obama administration faster than the sea level surrounding low-lying Pacific islands. Last week we learned about Benghazi talking points being edited. Friday we learned that the IRS targeted conservative political groups. Monday we learned the DOJ secretly seized two months of AP reporter phone records.

The scandals are dropping so fast now it’s getting hard to keep up. We have scandals tangential to other scandals (the IRS also accidentally grabbed millions of medical records?). We have scandals inside scandals (Holder recused himself with no written record of doing so?). We have minor scandals that are barely qualifying for airtime next to the major ones (The Army’s anti-sexual-harrassment official was accused of sexual assault just weeks after an Air Face anti-sexual-harrassment official was accused of the same thing? Obama admin is prosecuting Oil for killing bald eagles but not Wind?) When Jon Stewart skewers you two nights in a row for corruption and incompetency, you know this isn’t exactly a Fox News hullabaloo about Obama eating a falafel that was cooked by a guy who once allegedly complimented a terrorist’s turban.

Many are treating these revelations as some new, surprising thing. They’re certainly not new – My still-popular 218 Reasons list all sorts of abuses and questionable overreaches from Obama’s first term, from the NDAA, to drone strikes, to secret warrants and warrantless wiretapping, to federal raids, to blocking transparency, to prosecuting more whistleblowers than all previous presidents combined, to suing states, to appointing excessive numbers of lobbyists and fundraisers, to… well, you get the point.

So I’m not really surprised by the latest ones, either. In fact, I view them as inevitable. Part of my worldview is that people are imperfect. That is why we have always had corrupt politicians, and it’s why the more power they have, the more incompetence and corruption we will see, and the more costly this can be. That’s also why it’s important for conservatives to resist the temptation to pigeonhole this as an Obama thing – it’s a generic big government thing that is extremely likely to afflict every administration these days. Scandals are almost a sort of natural “market correction” to a government that grows too big, too ambitious, too arrogant.

The only thing that’s new or surprising is that the scandals are actually becoming front-page headline news for awhile. My cynical side thinks its convenient that it’s happening after Obama’s reelection, though it’s possible some of these are worse than before or that key revelations didn’t come out until now.

But the correct response to the abuse of a big government is not to simply fire some people and hope their replacements are better. The correct response is to limit the power that made abuses possible in the first place. Fortunately, there’s a decent chance we may get something like that for the freedom of press. Though I’m not going to hold my breath about the tax code.

How to Double Wages for Fast Food Workers

Fast food workers in my city joined protests around the country last week to push for higher wages for their work:

St. Louis fast food workers are calling for a wage of $15 an hour. Missouri’s minimum wage is $7.35 an hour…

When asked how the wage increase would affect consumers buying lunch Rafana asked, “Would you mind paying 25 cents more for your number two so that somebody can have a fare wage and be able to take care of their family?”

The local paper stoked the class warfare fires with its write-up:

Nobody seriously thought the industry would bow to moral suasion and start paying a living wage… If McDonald’s did that, it might not have been able to triple its CEO’s pay package to $13.8 million last year.

Now I support the right of workers to voluntarily negotiate better higher wages or better working conditions with their employers. But any discussions that ignore economic and mathematical realities don’t have any chance at improving that reality. So let’s look at some numbers.

Can You Double Wages At The Bottom By Paying Less At The Top?

We’ve all heard how inequality is growing, how the rich are getting richer, how the top 1% or whatever have nabbed 93% or whatever of the economic growth in the last five years or whatever. Here, we see claims that McDonald’s CEO’s pay was tripled. Yet the starting crew’s pay was not. How unfair!

Well, hold on a minute. Wikipedia says McDonald’s has about 1.8 million employees. If you fired him and split his entire pay package among every employee, they could get paid an extra $7.63….. per year. The decision to triple the CEO’s pay may be bad signaling, without getting into how much he “deserved” it, but it doesn’t imply that McDonald’s has enough money to double everyone’s pay.

To do that, we have to look at overall profits.

Can You Double Wages At The Bottom By Reducing Profits?

McDonald’s annual report is complex, especially because it looks like they have more data on company-operated stores than franchise stores, and it’s possible I’m reading some of this wrong. But it looks like “payroll and employee benefits” were $4.7 billion last year for company-operated stores, and if we assume a similar proportion for franchise from their sales, that gives a total labor cost of about $7 billion.

So let’s say we want to double that and increase McDonald’s labor costs by $7 billion. Their total profit last year before taxes was $8.1 billion. Now I’m assuming this includes payroll taxes (I don’t see a line item anywhere else) and that those taxes are not progressive, but I’m also assuming we’re not doubling benefits and maybe not even doubling pay for those in the middle and higher management tiers.

Wow. It looks like McDonald’s actually could double everyone’s wages from its existing profit margins. I honestly did not expect that to be mathematically possible, but it looks like it is, at least in theory.

Of course, that would reduce profit margins from around 20% to 3%, which would probably send the stock price plummeting. Now I know it’s trendy for liberals to scoff at high profit margins and paying investors and all that, especially at the expense of “living wages” for workers, and I admit it does look a little unnecessary.

But I think it’s a little more complicated than that. If you only have profit margins of a couple percent and/or no money from investors, you are an extremely vulnerable company. Minor fluctuations in supplier pricing could tip you into the red. It’s harder to expand or upgrade restaurants. It’s harder to handle debts (while I didn’t read the report closely enough to understand it all, it sounds like McDonald’s has debts).

All of these things make it harder for McDonald’s to hire employees and keep them around. So while McDonald’s might mathematically be able to double wages today, it might mean there’s a much higher risk of firing a lot of those people tomorrow. And I don’t think that’s quite what the living wage folks have in mind.

Can You Double Wages At The Bottom By Increasing Prices?

There’s an obvious way to keep profit margins at healthy enough levels to ensure the long-term stability of a company (and the jobs that come with it). Just increase prices. Some of the folks above seem to think that “paying 25 cents more for your number two” is enough to double wages and keep the company sustainable.

That would increase revenue about 5% and bring the margins back up to about 8% (although by now the assumed calculations are starting to pile up so please increase the size of your grain of salt and double-check my work). That’s better, though I’ve never run a business and I don’t know if that’s enough for sustainability. You could always add another quarter, but now you’re starting to hit another limitation – customer demand.

If you increase prices too much, more customers will go to another fast food restaurant, and you’ll have to get by with fewer employees. If all the fast food restaurants increase their wages and prices, more customers will go to nicer restaurants or buy their own groceries (which would actually probably be better for their health). Etc, etc.

This is why I definitely don’t support mandated attempts to regulate these wages. There are too many ways forced distortions in the market can backfire and destroy the very jobs you were trying to improve.

So How Do You Double Your Wages If You’re At The Bottom?

But if mandated wage increases are off the table, and voluntary negotiations don’t work, what’s left? What do you do to make more money if you’re stuck at the bottom tier of a fast-food restaurant?

Simple. Get out of the bottom tier.

Restaurants like McDonald’s have such ridiculously high turnover that pretty much anybody can become a manager if they want to – that’s one way to get higher pay. Or you can get work experience there and take it to a better restaurant with better pay. Those are some options available to almost anyone without even leaving the restaurant industry.

I know, I know, liberals can come up with all sorts of reasons those options aren’t available to certain people in certain circumstances and blah blah blah. But in my opinion, those options provide more opportunities to more people than mandated wage increases actually would.

Low-wage jobs are only supposed to be worked by teenagers who need experience more than they need a “living wage” at that point in their lives. Remember, you can’t make all jobs pay a living wage; you can only eliminate all jobs that are worth less than a living wage. Is it fair to deprive teenagers of the chance to work such a job? Unfortunately, adults with few opportunities will always compete for those jobs, too. But is it fair to tell them they can’t?

So in my opinion, if you want to help folks stuck in low-wage jobs, don’t tell them you’ll work to double their wages while putting some of them out of work. Instead, help them find more opportunities. That’s a more sustainable path for both current and future generations.