Relevant and even prescient commentary on news, politics and the economy.

Group Therapy

by Joseph Joyce

Group Therapy

Pop quiz:  which U.S. policymaker said last week: “We can’t solve everyone else’s problems anymore” in response to foreign criticism of U.S. handling of what issue?

a—Federal Reserve Chair Janet Yellen, responding to criticism by foreign central bankers of the Fed’s tapering of its asset purchases;

b—Treasury Secretary Jack Lew, following denunciations of the refusal of the U.S. Congress to pass legislation that would enable IMF quota reform;

c—an anonymous White House aide, defending the Obama  administration’s  response to the turmoil in the Ukraine.

The correct response is c. But Ms. Yellen and Mr. Lew, who are attending the conference of G20 finance ministers and central bank heads in Sydney, might be forgiven if they held similar (but unspoken) sentiments.

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Roger and George [Will]*

Despite the UAW’s attempt to do for the South what it has done to Detroit, the South can continue to practice entrepreneurial federalism. Capital is mobile. It goes where it is welcomed and stays where it is well treated, so states compete to create tax and regulatory environments conducive to job creation. Liberals call this a “race to the bottom.” Conservatives call it a race to rationality.

Breaking the grip of the unions, George F. Will, the Washington Post, Feb. 18

Yup.  The decline of the U.S. auto industry was the fault of the UAW, not, say, decisions by top management to deliberately destroy vehicle quality and ignore the clearly growing need for fuel efficiency.

Bring back the Ford Pinto!  And the Chevy Vega!  We want to compete with those anti-union German companies,* and those employee-hostile Japanese ones!

Elsewhere in that column, Will complains that VW management was quietly assisting the UAW in its organizing efforts.  Obviously a plot to undermine VW’s competitiveness.

Seriously?  Seriously?

Note to Mr. Will: There is a difference between ideology and fact; ideology does not constitute fact.

What a ridiculous column.


*Updated to add that link to a Dec. 2011 Forbes article.  The article’s title: “How Germany Builds Twice As Many Cars As The U.S. While Paying Its Workers Twice As Much.



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Jared Bernstein Gives Us The Best Graph on the Employment Effects of Minimum Wage Increases

They say sample size matters. A handful of sample points in a study doesn’t tell you much, because they could just be showing random variation. This is also true not when you’re looking at many studies. You need to look at lots of research that uses different methodologies and data sets to get a confident feel for the facts on the ground.

Jared Bernstein points us to exactly such an effort, looking at 64 studies on the employment effects of minimum-wage increases, with a wonderfully informative display:

Note: “se” refers to standard error; 1/se is a measure of statistical significance. The dots up high are generally more believable.

“Employment elasticity” is a measure of the impact of minimum-wage increases. A measure of -.1 (left of the zero line) suggests that 10% MW increase reduces employment by 1%.

All the high-statistical-significance studies put elasticity at zero: no employment effect.

There’s some clustering to the left of the line versus the right down at the bottom, suggesting a small negative employment effect, but none of those studies has high statistical significance.

And this doesn’t consider “file-drawer/publication bias”: studies that find no effect don’t get published, because researchers don’t submit them or journals don’t accept them for publication. The CBO explains this in its new report on minimum-wage effects (PDF). Emphasis mine.

an unexpectedly large number of studies report a negative effect on employment with a degree of precision just above conventional thresholds for publication. That would suggest that journals’ failure to publish studies finding weak effects of minimum-wage changes on employment may have led to a published literature skewed toward stronger effects.

And that doesn’t consider (pas possible!) negative-effect researchers finding ways to get to that publishable statistical-significance level. (It’s curious that those finding a positive effect don’t display this anomaly…)

So at least, you can mentally add a whole lot more unpublished dots to that tall vertical line. At most, you can shift a bunch of those published dots on the left farther to the right, and down.

Cross-posted at Asymptosis.

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Dear Ms. Boonstra: It’s too bad that you don’t live in Kentucky. Or Rhode Island. Or New York State. Or California. Or Arkansas. Or that Michigan’s state government now has a Republican governor, a Republican-controlled House, and Republican-controlled Senate. And, yes, that didn’t work until December. [UPDATED]

Congratulations, Republicans.  You’ve finally found a case in which the failure of the federal ACA website amounted to the failure of Obamacare itself. At least for what turned out to be a very difficult two months for one particular woman, Julie Boonstra, a resident of Michigan Republican Rep. Tim Walberg’s district.

Which, contrary to your (and the news media’s) incessant conflations, does not mean that the website is the ACA.  No, the website is still a website, not an insurance program.  And its failure last fall created havoc, for those two months, for people like Boonstra.  And also gave the 36 state Blue Cross/Blue Shield companies–all the cancelled-plan horror stories I’ve heard of involve a Blue Cross/Blue Shield company–in Republican-controlled states that did not create their own online healthcare exchange the opportunity to cruelly try to manipulate people Boonstra into buying its costliest plan, by implying that that was the sole alternative.

Boonstra has Chronic Myelogenous Leukemia (CML). She was diagnosed with her cancer five years ago. Necessary oral chemotherapy treatments cost $4,100 a month, out-of-pocket, and she will need those treatments for the rest of her life.

When, for weeks, she could not get the necessary information from, and then could not get through by phone to an ACA navigator for Michigan’s federally established exchange until mid-December, and then was told there was a waiting period of two weeks, extending beyond her old policy’s expiration date of Jan. 1, she contacted her congressional Representative asking for assistance in learning of them. He told her instead that she could be his guest at the State of the Union address.  She accepted. Then, in desperation to learn her options for insurance, she contacted the Michigan Farm Bureau, which assisted her in finding a new policy, not through the exchange but apparently through Blue Care, her old insurance company.  The Farm Bureau even looked into the possibility of Medicaid for her, through the ACA’s Medicaid expansion, which Michigan has joined.

At least as of the date of the State of the Union address, she still did not know what her options were through the exchange.  Nor whether she even qualifies for Medicaid under the expansion; she was unable to get a determinatio of that.  Nor whether she would qualify for a federal subsidy, had she purchased her policy through an ACA exchange established by Michigan or through

Well, hopefully, next year.

By which time she may well be quickly approaching her old policy’s lifetime coverage limit.  Or by which time Blue Care might simply have decided that she was too expensive to continue to cover, and unceremoniously dropped her as a policyholder.  And, unable then to obtain coverage through another company because of her preexisting condition, she might have contacted her congressional representative, Tim Walberg, and asked him for assistance.

She apparently does work, full-time, but not for an employer that provides healthcare insurance.

I know about Ms. Boonstra because, well, she’s now cut an ad, funded by the Koch brothers’ super PAC, Americans for Prosperity, attacking Democratic Congressman Gary Peters, who is running for the Senate seat that will be vacated by Carl Levin, for–surprise!–voting for Obamacare. And I also know this, from Glenn Kessler’s “The Fact Checker” in the Washington Post today:

First of all, many viewers [of the Americans for Prosperity ad] might think Boonstra lost her doctor, as she mentions her “wonderful doctor” and then says her plan was canceled. But AFP confirms that she was able to find a plan, via Blue Cross Blue Shield, that had her doctor in its network.

Local news reports recount that Boonstra, like many Americans, initially had trouble getting a plan because of the botched launch of No doubt that was a difficult experience. She then was invited by her local member of Congress to attend the State of the Union address and participated in a Republican National Committee news conference that highlighted problems with Obamacare’s stumbling launch.

At that news conference, Boonstra said, “I’m paying a higher cost now as far as out of pocket costs and the coverage is just not the same.”  But in the new ad she says “the out-of-pocket costs are so high, it’s unaffordable.”

The claim that the costs are now “unaffordable” appeared odd because, under Obamacare, there is an out-of-pocket maximum of $6,350 for an individual plan, after which the insurance plan pays 100 percent of covered benefits. The Blue Cross Blue Shield plans in Michigan that appear to match Boonstra’s plan, as described in local news reports, all have that limit.

Meanwhile, Boonstra told the Detroit News that her monthly premiums were cut in half, from $1,100 a month to $571. That’s a savings of $529 a month. Over the course of a year, the premium savings amounts to $6,348—just two dollars shy of the out-of-pocket maximum.

We were unable to reach Boonstra, but on the fact of it, the premium savings appear to match whatever out-of-pocket costs she now faces.

And next year, she might be able to get a policy through that is better than her current one and better than her former one.  And maybe a substantial subsidy to help pay for it.  In any event, she’ll continue to have healthcare insurance.  Until, of course, the Republicans win the White House and control of both houses of Congress. With the help of her vote.

If only she lived in Kentucky.  Or Rhode Island.  Or even Ann Arbor, which borders on her town of Dexter and is represented in the House by a Democrat who, had she contacted his office, might have assisted her in getting the information she so desperately needed last December.  But who wouldn’t have invited her to be his guest at the State of the Union address.


UPDATED: run75441, a.k.a. Bill H, of AB, a Michigan resident, posted the following comment to my post, detailing what actually happened in Michigan regarding the insurance exchange for the state and the state’s Medicaid expansion:

The fact of the matter is; the Republican controlled Senate and House waited until the last minute to pass the Medicaid Expansion and other aspects of the PPACA. They also waited to the last minute to decide not to establish healthcare exchanges thereby causing the Federal Government to step in to establish them. Gov. Synder recognizing a good deal, supported the Medicaid Expansion.

Insidious amongst the legislature is it failed to cause the PPACA Medicaid Expansionto be implemented January 1, 2014 through vote and instead GOP Senate Majority Leader Randy Richardville opted to delay the vote causing the PPACA Medicaid Expansion to be implemented April 1, 2014 instead of January 1st. It is costing Michigan ~$7 million/day as a result. The funding provided and if used in the manner it was previously used is enough to fund the “Expansion” until 2028 making it a good deal for the state.

Even if eligible for Medicaid under the PPACA, Ms. Boonstra would not have had access to the expanded Medicaid in Michigan until April 1, 2014.

Sooo … yes, Virginia, er, Ms. Boonstra, there is, almost certainly, a financial advantage to you from Obamacare. Or at least there almost certainly will be, soon.

Here’s a suggestion: Call Rep. Peters’s local office and ask for assistance in, possibly, swapping out the plan you bought, for a plan through the ACA exchange, in order to receive the subsidy you’re almost certainly entitled to.  The ph. # is: 313-964-9960.

And, who knows?  Maybe soon you’ll be able to resume your pre-illness plans to be a stay-at-home mom.  Although Rep. Walberg, who thinks job lock in order to have healthcare insurance is great national policy, would disapprove of your choice.




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The Supreme Court and Politics–Especially the current conservative majority’s appropriation of the First Amendment in the service of Republican Party electoral victories

Dan Crawford emailed me this morning with a link to Linda Greenhouse’s op-ed in today’s New York Times, titled “Law and Politics,” and asked me to post about it.  A more apt title for the op-ed, which a headline writer rather than Greenhouse (whose bailiwick is the Supreme Court) titled, would be “The Supreme Court and Politics,” as that is its sole subject.

The piece discusses work by eminent political scientist Robert A. Dahl, who died earlier this month at the age of 98, establishing a particular  theory about the Supreme Court: that, although there is some inevitable lag time, the Supreme Court normally fairly quickly recalibrates to follow sea changes in public opinion.

Here’s how I responded to Dan’s email:

Hi, Dan.  I’m a big fan of Linda Greenhouse, but I disagree with some of what she wrote. I think Dahl’s 1957 article is more out-of-date than she says.  I agree more with Jack Balkin, whom she mentions, and who writes a popular law blog called Balkinization.  I think that the current Court majority will remain deeply steeped in the specifics of the Reagan-era conservative legal movement, which involves some really weird doctrines that they claim as constitutional ones, some of which the public is clueless about and that therefore these justices pay no price in public opinion for.  I’ve alluded to this on AB from time to time, but have wanted for a while to write in more depth about it.

There’s one really big “sleeper” case, especially, that was argued at the Court recently and that I mentioned, but that I want to write in more depth about.  I do think that if the majority rules the way they clearly want to in that case, there will be more publicity about it than they expect, and more backlash.  Not as much as with Citizens United or even as much as with the Voting Rights Act case last year, but they expect almost none and I think they’ll be surprised that they’re wrong about that.

But the bottom line is that I don’t think this crowd cares that much about public opinion.  They’d prefer, of course, that no one notice what they’re doing, but I doubt that fear of public backlash will stop what amounts to a Reagan-era legislative agenda that these people clearly are hell-bent on forcing into law, much of it inoculated against reversal by Congress (a la the Ledbetter case, which Greenhouse mentions) by claiming some constitutional ground for the ruling. Ledbetter and many of their other pro-business and pro-state-and-local-government procedural/jurisdictional-rules Supreme Court opinions–interpretations-cum-rewritings of procedural or substantive statutes, some overtly fabricated by the Court in pretty clear violation of the Constitution’s Articles I and II (separation of powers)–can eventually be reversed by a Congress not in thrall to the Koch brothers. (Congress reversed Ledbetter before Citizens United.)  But when the Court couches its rulings as constitutional dictate, Congress can’t reverse them.

But there are some aspects that are peculiar to this particular majority, and that has received very little attention.  Always in the past (at least to my knowledge), the Court limited itself in major, sweeping rulings to issues raised by the parties.  This was true, certainly, in the New Deal rulings first striking down New Deal legislation and then reversing itself and upholding most of the legislation.  It also was true in every aspect of the Warren Court era–racial issues, First Amendment issues, criminal defendants’ rights, etc.–and then in the Burger Court era (e.g., Roe v. Wade).  And those cases always were brought not by some manufactured-issue ideologues, as occurs regularly now, but instead by normal-circumstance “cases and controversies,” as the constitutional phrase goes.

What is happening now is an orchestrated dance between rightwing conservative-movement lawyers and groups, and the Reagan, Bush I and Bush II justices, in which some really bizarre constitutional and statutory-interpretation arguments are made, and then adopted by the Court, dramatically but very often quietly rewriting parts of the Constitution (e.g., the Supremacy Clause, flipping it upside-down when applied to state judicial branches but flipping it back to serve conservative-movement dogma in other contexts) and procedural and substantive statutes. In fact, a hallmark of this crowd is the casual flipping back-and-forth as convenient–a hallmark especially of Scalia and Alito.


The “sleeper” case I referenced is Harris v. Quinn, which was argued to the Court on Jan. 21.  At first blush a labor-law matter under the National Labor Relations Act (a.k.a., “Taft-Hartley”), but apparently a majority of the Court plans to turn it into a First Amendment case. At oral argument, Samuel Alito claimed that public-employee unions, by their very existence, violate the First Amendment speech and assembly rights of workers who don’t belong to the union, and Anthony Kennedy suggested that the longtime labor-law rule known as a “fair share” provision in public-employee union contracts, allowed by Taft-Hartley and previous Supreme Court opinions, violates the First Amendment’s “petition” clause (right to petition the government for a redress of grievances).  Something about some anti-union public employees who are concerned about “the size of government” and who therefore want to be fired or have their wages and pensions reduced.


An op-ed in the Washington Post by labor and employment lawyer Moshe Marvit, published the day before the argument in the case, summarizes the background:

On Tuesday the Supreme Court will hear arguments in Harris v. Quinn, a case that has been referred to as a “sleeper” by both conservatives and liberals and may turn out to be the most significant labor law case in decades. It was brought by the National Right to Work Legal Defense Foundation (NRTW), whose mission is to use “strategic litigation” to “eliminate coercive union power and compulsory unionism abuses,”in this case on behalf of several personal assistants who provide in-home services to persons with disabilities under Illinois’s Medicaid program.

NRTW argues that these home-care workers are not public employees and therefore should not have the right to exclusive representation by a union, nor should they have to pay either membership dues or a “fair share” fee for the union they have chosen to represent them. (“Exclusive representation” means that all workers are covered by a union so long as the majority have voted for it. A “fair share” provision requires workers who are not union members to pay a proportionate share of the costs incurred by the union to support the workforce in the collective bargaining process. Unions are not allowed to use “fair share” fees on any political activities.)

But that was then.  Then, being before the oral argument.  Now, it’s a First Amendment case concerning forced speech about the role of government, and the right of public employees to petition their government employer for a redress of the grievance of big government.  Public employees who are concerned about the size of government should be entitled to resign, or forego a pay or pension increase and demand a larger employee contribution for healthcare insurance.

Or at least they should be allowed to accept those benefits without contributing to the union’s expenses to obtain them for the workers.

This is as opposed to, say, shareholders–some of them via their pension funds, some of them through mutual funds, and almost all of them entirely unwittingly–who care every bit as much about the size of government as do those anti-union public employees.  And who the Supreme Court has said must be forced to support the political views of the CEOs who use corporate funds to secretly contribute to Republican PACs.  Especially views about the size of government.  Each corporation is a person–specifically, the person who is its CEO.  At least if the CEO is a Republican.

States, too, it now turns out, also are people, entitled to Fourteenth Amendment equal protection of the law, a constitutional provision heretofore accorded to individuals as against a state’s denial of equal protection of the law.  Who knew?  Well, whatever.

No, Harris was not about the First Amendment until the Republican justices decided (apparently) that it will be.  As the articles about this case that I’ve linked to above show, this is in contrast to a case called Garcetti v. Ceballos in early 2006.  Wikipedia explains:

Garcetti v. Ceballos, 547 U.S. 410 (2006), is a decision by the Supreme Court of the United States involving the First Amendment free speech protections for government employees. The plaintiff in the case was a district attorney who claimed that he had been passed up for a promotion for criticizing the legitimacy of a warrant. The Court ruled, in a 5-4 decision, that because his statements were made pursuant to his position as a public employee, rather than as a private citizen, his speech had no First Amendment protection.

The case was by no means incidentally Samuel Alito’s, um, very first case as a Supreme Court justice.  He insisted.  Again, Wikipedia explains:

The Supreme Court reversed the Ninth Circuit, ruling in a 5-4 decision delivered by Justice Anthony Kennedy that the First Amendment does not prevent employees from being disciplined for expressions they make pursuant to their professional duties. The case had been reargued following the retirement of Justice Sandra Day O’Connor, as the decision was tied without her; her successor, Justice Samuel Alito, then broke the tie.

The four dissenting justices, in three dissents written by Justices John Paul Stevens, David Souter, and Stephen Breyer, took issue with the majority’s firm line against the First Amendment ever applying to speech made within the scope of public employment, arguing instead that the government’s stronger interest in this context could be accommodated by the ordinary balancing test.

Actually, what happened is that the original 5-4 opinion was issued just before the Senate voted to confirm Alito as O’connor’s replace.  Technically, the opinion had not yet become final when Altio was sworn in, because the short time allotted the losing party to file a petition for reconsideration had not expired.  The Court had not granted a petition for reconsideration in the preceding four decades or so.  But Alito supplied the fifth vote to rehear the case in order to reverse the result.

Kennedy wrote the opinion for the new majority.  Wikipedia summarizes it:

The Court wrote that its “precedents do not support the existence of a constitutional cause of action behind every statement a public employee makes in the course of doing his or her job.” Instead, public employees are not speaking as citizens when they are speaking to fulfill a responsibility of their job.

Unless, of course, the job responsibility at issue is compliance with a labor agreement negotiated between a union and the employer.  Or if the statement at issue concerns something as unimportant as the legitimacy of a warrant rather than the all-important matter of the size of government.

Also in today’s New York Times, along with Greenhouse’s op-ed, is an article by Adam Liptak, the Times’ current Supreme Court correspondent, about a case to be argued at the Court on Monday that, as Liptak notes albeit obliquely, promises to illustrate one of the hallmarks of this Court.  A Court majority that itself routinely, casually rewrites procedural and substantive statutes and allows the lower federal courts to do the same, for decades, until ExxonMobil or Sprint petitions the Supreme Court about it, takes umbrage when it is the executive branch rather than the judicial branch that encroaches upon the Congress’s constitutional prerogatives. But only when the executive branch is headed by a Democrat.

A Court that has so brazenly and aggressively precluded access to federal court, and most certainly to itself, as a mechanism to petition the government for a redress of grievances–effectuating a key goal of the conservative movement from which these five justices all hail–is about to concern itself with the right of public employees to petition for small government by refusing to pay for their union representation.

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Putting more eggs in fewer baskets… a risky market failure

There is a bedtime story of a young boy who put all his eggs into one basket and when that basket fell, all the eggs broke. It is risky to put your eggs into one basket. Investors overcome this risk by diversifying their portfolio. Even the colossal derivatives market is said to lower risk through spreading risk.

But at the core of the US economy, we see exactly the opposite happening. The consumption which drives the economy is being put into fewer and fewer hands. There is a greater risk growing.

Consumption depends on income. And income comes from two sources… labor income and capital income. Labor income goes to the hands of many people. Capital income goes to the hands of fewer people. But we have seen labor’s share of national income fall, meaning that capital’s share has risen.

labor share 2

Consumption from capital income has thus grown by leaps and bounds… into fewer hands.

consumption cap & lab

(For easier comparison, the left axis is 10% of the right axis.)

Consumption from labor income used to represent total consumption pretty well. Basically the risks of consumption were spread among many hands. But then around 2002, consumption from capital income began to grow like never before. Consumption from labor income began to separate more and more from total consumption.

The consumption that drives the economy has been put into fewer hands than ever before. And this is risky, because capital income is more discretionary. For example, it depends on asset prices, stock prices, housing prices, and the like. Many times capital income goes capriciously to luxury goods, and not basic needs. The spending by capital income is more mood driven.

The economic growth in real GDP since the crisis has been largely based on increasing consumption by capital income. Yet, look at how the 2008 crisis was preceded by a pull back in consumption by capital income, even as labor income’s consumption grew. And there are signs that capital income is beginning to pull back their consumption now.

What are some causes that increased spending by capital income?

  • Lower taxes on capital income.
  • Lower labor income.
  • and since the crisis… Loose monetary policy without a transmission mechanism to labor income.

You can tell me all day long that loose monetary policy, QE, derivatives and lower taxes on capital income are boosting the economy. And yes they have. I agree with you. Capital income has driven the boost.  But then I look at the graph above… and I hear of middle class malls shutting down, while top-end malls flourish. I hear of $2 billion dollar homes going like hotcakes in California. I see today that Walmart’s profits are down 21% as they serve low-income shoppers.

We can only hope that the rich capitalists keep spending. Because if they start protecting their money, economic growth will come to a halt. Yet, I fear that they will pull back their consumption in 2014 as QE winds down, as China slows down, and as other factors weigh down on business profits.

The result will be an increasing risk of economic contraction, because we acted against the wisdom of a bedtime story… We put too many eggs in too few baskets.

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Iran and live call

Today at 11:00 a.m. (EST), join three contributors to the new Foreign Affairs ebook Iran and the Bomb 2: A New Hope—CFR Senior Fellow Elliott Abrams, Brookings Institution Senior Fellow Suzanne Maloney, and Carnegie Endowment for International Peace Vice President George Perkovich—for a discussion about the continuing negotiations between Iran and the P5+1 over Iran’s nuclear program, including the debate about potential U.S. sanctions against Iran.

Date: Thursday, February 20, 2014

Call Time: 11:00 a.m.–11:45 p.m. (EST)

Dial-in Information:

U.S. Callers: 1.800.351.6805

International Callers: 1.334.260.0508

Password: IRAN1


Elliott Abrams, Senior Fellow for Middle Eastern Studies, Council on Foreign Relations; former Deputy National Security Adviser to President George W. Bush

Suzanne Maloney, Senior Fellow, Foreign Policy, Saban Center for Middle East Policy, Brookings Institution; former member, State Department Policy Planning Staff

George Perkovich, Vice President for Studies, Carnegie Endowment for International Peace; member, Council on Foreign Relations Task Force on U.S. Nuclear Policy, former foreign policy adviser and speechwriter to Senator Joe Biden.

(ht Ken)

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CBO Whiffs on Minimum Wage

The Congressional Budget Office has just issued a report on the minimum wage that is a real head-scratcher. Analyzing proposals to raise the minimum wage to $9.00 or $10.10 per hour, it concludes in the latter case that there would be 500,000 fewer jobs in the second half of 2016 than there would be under current law (100,000 fewer for $9.00/hr.).

Predictably, conservatives have seized on this number as proof that the minimum wage is a “job killer.” Even liberal media, such as Talking Points Memo in this paragraph’s link, seem to think that number is a big problem, going on to say, “It’s not all bad, though, for one of the centerpieces of Democrats’ middle-class agenda ahead of the November congressional elections,” as if the CBO report were mostly bad news for Democrats.

There are two problems with these claims. First, the CBO’s calculations undervalue the best research on the minimum wage. Second, even in the CBO’s estimated world, low wage workers are much better off as a whole than under the current $7.25/hr. minimum wage.

As I’ve discussed before, a relatively crude cross-national comparison of rich countries’ minimum wages and unemployment rates does nothing to suggest any job-killing is going on. But the CBO’s estimation procedure has serious flaws. It begins (p. 6) with what it calls “conventional economic analysis,” which is already a big mistake. Simple Econ 101 reasoning (when the price of something goes up, the quantity purchased goes down) has had only sketchy empirical support, something that has been especially clear from meta-analysis of minimum wage studies (ungated version of Doucouliagos and Stanley 2009 here).

The CBO, of course, has heard of these studies, but it remains with a non-transparent explanation of how it weighted different studies (p. 22), saying it gave the most weight to contiguous state comparison studies. The only thing is, according to Arindajit Dube, these are the studies least likely to find a negative employment effect. Thus, how CBO ends up with a baseline of job loss remains mystifying.

Okay, so 500,000 fewer jobs isn’t entirely plausible then, but what if we accept for the moment that it is? As Jared Bernstein and Dean Baker point out, there are still far more winners (16.5 million direct, another 8 million indirect–the latter being workers just above $10.10 who would probably see raises) than losers (0.5 million among low-wage workers; the rest are people with high incomes) in this scenario. And as Baker emphasizes, “…we are not going to see 500,000 designated losers who are permanently unemployed as a result of this policy.” Instead, what will happen is people will work 2% fewer hours at an hourly rate that is 39.3% higher.

The math is simple: 0.98 X 1.393 = 1.365. In other words, low-wage workers will see their income increase, on average 36.5%. And this is the worst-case scenario!

I’ve said it before, and I’ll say it again: the minimum wage is a winner both economically and politically.

Cross-posted at Middle Class Political Economist.

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The Conservative Case for a Minimum Wage Hike

Most conservatives disparage minimum-wage laws with straightforward economic reasoning, based on Econ 101 textbook theory: demand curves slope down. If you institute a price floor, raising the price of labor, you’ll get less labor demanded — less jobs. This hurts poor people, especially entry-level folks like teenagers.

At first blush, the argument’s got legs. And there’s been a fair amount of research over the decades suggesting that higher minimum wages do hurt employment. But conservative economists know that life’s more complicated than that. There’s also good research suggesting that this effect isn’t very strong in the low-wage labor market; many other economic effects are at play.

One of those other effects — also based on textbook Econ-101 reasoning — bears serious consideration by conservatives: economic incidenceIt’s often darned hard to know where the effects (the “incidence”) of a policy or system will land — who will get the benefits and bear the burdens — especially in a complex system with lots of moving parts. That’s a core conservative belief (“unintended consequences”).

On the minimum wage, it’s not crazy to suggest that minimum-wage employers — many of whose workers inevitably rely on government benefits — are the actual beneficiaries of those benefits. Those employers are able to get workers at lower wages than they would absent those benefits, so to some extent at least (depending on incidence) those businesses thrive at the expense of taxpayers. The dole goes, largely or partially, to the employer’s bottom line.

How do we suss out these incidence effects? In recent years we’ve seen some excellent new research on the employment and earnings effects of different minimum-wage laws, in particular great work by Arindrajit Dube et. al. comparing adjacent counties across state lines with different minimum wages (levels and changes).

This research has a big leg up on all the previous studies. It very cleverly exploits the implicit “control group” of an ongoing natural experiment across the whole country, over a quarter-century, to tease out cause, effect, and result. Dube and his cohort are incredibly careful, diligent, competent, and thoughtful researchers and analysts. Read their stuff. I think you’ll be hard-pressed to disagree.

Results? They find that minimum-wage laws have had little influence on employment levels, at the minimum-wage levels we’ve seen over past decades — too small to consider either statistically or truly significant. But they find significant increases in earnings from higher minimum wages. Minimum-wage laws have the rather intuitive  effect of increasing poor people’s earnings. (Some might deride this intuition as unsophisticated “folk economics,” but: 1. it’s actually much more economically sophisticated than the Econ-101 thinking, and 2. it seems to be correct.)

And here’s the key takeaway for conservatives: if higher minimum wages increase poor people’s market incomes, they reduce their reliance on government handouts, and reduce government spending. That’s not even Econ 101. It’s just arithmetic.

Conservatives oughtta love that. And they should also like the part about responsibility: require all business owners to do what most already do: make a profit while paying the actual cost of keeping their workers alive, in decent health, trained, educated, mobile, and employable, rather than irresponsibly externalizing those costs onto taxpayers and pocketing the profits.

How do workers’ livings get paid for — through government benefits or employers’ wages? Conservatives would naturally vote for private enterprise.

But here’s where it gets a lot more interesting. A new study out of the Chicago Fed (PDF) uses the same adjacent-county, natural-experiment methodology, and looks at what happens to companies in higher minimum-wage environments:

Firm entry and exit both rise.

Again, they find minor employment effects and significant earnings effects. But there’s more churn among companies. New companies emerge that thrive and profit in the higher minimum-wage environment, because their business models are more labor-efficient and they invest more in productive capital. (Not just drill presses, but human and organizational capital developed through training, retention, efficient business processes, etc.)

Companies that are less labor-efficient and more reliant on low wages (and, hence, taxpayer subsidies/handouts) are less successful in this environment. Inefficient businesses that can’t pay the full cost of their workers and still make a profit, fade away and go out of business.

Schumpeter. Creative destruction.

In the language of (neo)classical economics, higher minimum wages (again, within the ranges we’ve seen over past decades) seem to push the whole system to a new, higher equilibrium. Employees earn more. Businesses invest more in productivity. All boats rise. The pie gets bigger. We all take another step, together, up toward that shining city on the hill.

The real (inflation-adjusted) minimum wage is at a historically quite low level right now, so it’s reasonable to expect that the effects of increases that have played out over past decades will also play out over the next ten, twenty, or thirty years. We’ll all be better off in three decades if we raise the minimum wage today.

But suppose that isn’t true. Suppose we end up in the same place thirty years from now that we would without a minimum-wage hike. Over the course of those decades, tens of millions of workers and their families will have lived better, more prosperous lives — for decades on end. The promise of American opportunity, embodied. To quote the great economist Abba Lerner, “In the long run, we’re always in the short run.”

If you’re a conservative who wants to:

• Get people off the government dole

• Reduce government spending

• Encourage investment in productive capital

• Spur the process of creative destruction, and

• Demonstrate the manifest benefits of hard work and American opportunity…

You might consider throwing your full-throated support behind a minimum-wage increase.

Dozens of the country’s most prominent economists, of diverse political persuasions, agree 4:1 that an increase “would be a desirable policy.” Bill O’Reilly supports it. So do hundreds of Patriotic Millionaires and Smart Capitalists for American Prosperity

Here’s to suggest that other conservatives and business leaders might find a very comfortable seat on this bandwagon.

Cross-posted at Asymptosis.

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