How to Ruin a Neighborhood by Sarah Skwire

skwire-2signsAnti-development and Classist Programs Come Cloaked in Homey Slogans.

“Distinctive Homes Available, Starting at $695,000”

“Homes, Not High-Rises”

Every day that I take my kids to school, I pass these two signs. My neighborhood is currently expanding, and some formerly vacant land across from the school building now has three well-designed and sumptuously outfitted single-family homes standing on it. Right across the street from two schools and a short bike ride away from a park, a Starbucks, and my favorite ice cream store, these homes are perfectly located for families.

About five blocks away, a new apartment building and parking garage are also under construction. The apartment building, which will have shops on the ground floor so that it fits in well with my mixed-use neighborhood, will be five stories tall and located near a busy and vibrant intersection — right by a CVS, a HopCat brewpub, and a bank. It’s walking distance from a great small music venue, several bars, a taco shop, Indian and Cuban food, a different Starbucks, and a tattoo parlor. It’s a great location for young singles or couples without kids.

And yet, as the signs in my neighborhood indicate, for a lot of my neighbors, the high-rise apartment building is a problem in a way that the new single-family homes are not.

My years living in an actual high-rise in Chicago mean that I snicker when a five-story building is referred to as a high-rise. No matter. The real concern here is that the combination of signs posted in my neighborhood highlights one of the constant challenges posed to the vibrant, mixed-use, city neighborhoods that urban activist Jane Jacobs valued so highly.

That challenge is us. That challenge is our own self-love and our own provincialism. We all think that our own ways of living, our own styles of home, and our own choices are the best ones for us. And we often (no matter how hard we try to avoid it) assume that they are also the best for everyone else.

I live in a small brick bungalow on the edge of a pricey neighborhood because I would rather have a “good enough” house in a safe neighborhood with great restaurants, parks, and schools my kids can walk to than have a much grander house in a neighborhood that doesn’t offer those things.

That’s my choice, and it reflects the way I’m living now.

But at various other points in my life, the homes that best suited my needs were a college dorm room, a room on the top floor of my coed fraternity’s house, a shared flat in Oxford, and yes, a tiny high-rise studio in Chicago.

Much as I loved those past homes, they would be inferior choices for me now that I have two kids and a steady paycheck. For me, right now, the single-family home I have is just right. And surely, for the three families who buy them, those new and distinctive $695,000 single-family homes will be just right.

That those homes are just right for some people does not mean they are just right for everyone. When people say, “homes, not high-rises,” they think they are saying, “Everyone should have a great house like I do! I can’t imagine living in an apartment!”

But they are really saying, “If you are not yet ready to afford a single-family home and all that comes with it, there is no place for you here.” They are really saying, “There’s a salary floor on living in this neighborhood and you — new graduate, or recently divorced dad, or newcomer to our city or country, or family who just wants a smaller space — you don’t cut it. Keep moving.”

It may be fine for neighborhoods to make that decision. But I think it’s important to acknowledge what’s really happening. Rather than allowing people to cloak their antidevelopment and classist programs in slogans that pretend to be concerned with cozy concepts like “home,” let’s not be shy about telling them exactly what they’re doing.

And let’s not lie to ourselves about what we’ll lose. The less mixed use my neighborhood sees, the less population density it has, the less variety of housing it offers, the less it will have of the things that make it a fun and funky neighborhood. If the rent gets too high for that amazing, cheap taco shop to turn a profit on its carnitas and carne asada, and if there’s not enough street traffic to bring customers into the Cuban sandwich place for a medianoche and a cortado, those places will disappear.

“Growth, not height restrictions and a fixed building stock, keeps space affordable and ensures that poorer people and less profitable firms can stay and help a thriving city remain successful and diverse,” writes economist Edward Glaeser in the Atlantic. “Height restrictions do increase light, and preservation does protect history, but we shouldn’t pretend that these benefits come without a cost.”

I’m not sure I’m willing to make the trade-off because some of my neighbors think that anything under 2,700 square feet can’t be a real home.

Sarah SkwireSarah Skwire

Sarah Skwire is the poetry editor of the Freeman and a senior fellow at Liberty Fund, Inc. She is a poet and author of the writing textbook Writing with a Thesis. She is a member of the FEE Faculty Network.

VIDEO: Donald Trump’s Congressional Testimony on the 1991 Economic Depression

The House Task Force on Urgent Fiscal Issues met on November 21, 1991 to discuss the credit shortage in the U.S. and whether it is stifling America’s economic recovery.

Witnesses at the hearing included financier Donald Trump and the former chairman of the FDIC, William Seidman, who testified on the current recession and proposals to spur economic growth and investment.

Watch the testimony of Donald Trump:

The Hidden Tax That Costs Households up to $1,500 a Year by Salim Furth

The Cost of Occupational Licensing Adds Up!

A rising tide of regulation has covered almost a third of the U.S. labor market. Workers who previously could find a job on the strength of their experience and talent now need their state government’s permission before taking a job. The “permission slip” in this case is an occupational license or required certification.

Occupational licenses act as a barrier to potential new workers in an occupation. The costs and delay associated with obtaining a license convinces many potential workers to not even try.

As a result of the decreased competition among workers, customers end up paying more, either directly or through their state and local taxes.

Unequal burden

Although state-by-state licensure numbers are not firmly established, a Harris poll conducted in 2013 found large differences between the states. Applying the poll results to average annual earnings in each state and using $1,033 per household as a national baseline, I estimated how much the average household in each state would save from comprehensive licensure reform.

The hidden tax on services is highest in Washington and lowest in South Carolina. The six states that impose the highest costs are states where regulations and wages are both high: Washington, Connecticut, Iowa, Nevada, Massachusetts, and Alaska. In Washington, high regulation costs the average household $1,550 per year.

In low-regulation states the costs are much lower. South Carolina, Kansas, Indiana, Rhode Island, Vermont, and New Hampshire all impose less than $700 per year in hidden service taxes on the average household.

The results show that there are few obvious regional patterns in the data. For example, three of the six New England states are near the bottom of the list but two are near the top. Most Southern states have lower costs, but only because they have lower wages — and Florida and Texas are the 10th and 11th most costly in the nation despite moderate wages. Low-wage states have lower dollar costs, but readers should keep in mind that a hidden tax of $500 is a larger share of income for the average South Carolina household than it is for the average Washington household.

Every state has room for improvement — for example, South Carolina applies restrictive scope of practice rules to nurse practitioners. If the state instead followed the low-cost New England states and allowed nurse practitioners to prescribe medicine and practice independent of a physician, it would make health care more accessible and affordable without compromising on care.

Evidence

Typically, getting a license involves fees, tests, and continuing education. For example, to become a teacher in Illinois requires a $100 application fee, several tests (each of which has its own fee), and completion of a teacher-preparation class approved by the state. Prospective teachers must also have a bachelor’s degree.

To remain in good standing with the state, teachers have to pay $10 a year (and a $500 fine if they miss a year) and take continuing education classes. The simple certification, however, is not enough for an experienced teacher to become a reading specialist (requires a master’s degree) or to teach driver’s ed (requires specialized classes).

There are specific “endorsements” that are required for each age range — an experienced high school teacher cannot simply accept a job as a middle school teacher without first getting permission from the state.

There is little rigorous evidence that these licenses improve the quality or safety of the services being offered. The Council of Economic Advisers found 12 studies of quality and safety:

  • Two of the 12 studies found positive outcomes from licensure;
  • One found a negative outcome;
  • Nine could not rule out licensure having no effect on quality or safety.

However, there is ample evidence that licensure increases the cost of services, makes it harder to find a job and harder to move between states.

Reform

Occasionally a state takes a step in the right direction, such as Nebraska’s legislature freeing hair braiders from the requirement to become licensed in cosmetology, which is unrelated to hair braiding. But no state has yet attempted comprehensive reform.

Any of the 50 states could step into this void by taking a bold step to help consumers and potential workers. One simple way to enact broad reform would be to recognize licenses granted by the other 49 states. Someone who is qualified to be a doctor in Wisconsin can practice medicine safely in Delaware. Honoring out-of-state licenses would help a state to attract skilled workers, boost its economy, and reduce the hidden tax on its consumers.

This article first appeared at the Daily Signal.

Salim FurthSalim Furth

Salim Furth, Ph.D., researches and explains how public policy affects economic growth as a research fellow in macroeconomics at The Heritage Foundation’s Center for Data Analysis.

Taxpayers Pay through the Nose for the Minimum Wage by Adam Millsap

A Billion Dollar Stool to Reach the Bottom Rung of the Job Ladder.

In February, the Obama administration proposed a “First Job” initiative. The main goal of the aptly titled initiative is to help unemployed young people obtain their first job by spending $5.5 billion on grants, training, and direct wages. Unfortunately – but unsurprisingly – the press release failed to acknowledge the most significant factor impeding employment in this age group: the minimum wage.

Everyone knows that a first job is a vital step in a young person’s development. Research has shown that work experience at a young age teaches positive work habits, time management, perseverance, and improves self-confidence. Increases in teenage employment also reduce the rate of violent crime. Yet despite these well-known benefits, the US maintains a minimum wage policy that makes it very difficult for all but the most productive teenagers to find a job.

When the minimum wage was discussed in the late 19th and early 20th century it was in the context of preventing the least skilled, most “undesirable” workers from finding a job, with the goal of eradicating the unemployable people. For the next 80-plus years it was common knowledge that a minimum wage would reduce employment among the least-skilled workers. The only debate was about whether such a reduction was desirable from society’s perspective, as many of the appalling eugenicists of the time contended.

As late as 1987, the New York Times editorial staff recommended a minimum wage of $0 because of its negative effects on employment. The Times argued that the minimum wage was an ineffective anti-poverty tool whose employment costs outweighed any benefits from higher wages.

Fast forward to the early 1990s, when an economic study purported to show that a slight increase in the minimum wage may not reduce employment after all. Despite the tenuous results of this study, it provided minimum wage supporters with the ammunition they needed to push for increases in the minimum wage at the federal, state, and local level without worrying about declines in employment. This misinformed thinking continues and is the basis for modern calls to raise the federal minimum wage to $10.10 per hour or even $15 per hour, as some cities have already done.

Meanwhile, the labour force participation rate for 16-19 year olds has fallen from over 50% in the early 1990s to 35% in January 2016. Some of this is due to more young people engaging in extra-curricular activities and attending college, but if those were the only causes then the Obama administration would have little reason to be concerned about teenage employment.

Despite the decline of teenagers in the labour market and the numerous recent studies that show that the minimum wage has adverse effects on teenage employment, the minimum wage continues to be viewed by many as an effective anti-poverty tool with little to no adverse effects. It is this line of thinking that has encouraged the newest proposal calling for billions of taxpayer dollars to provide jobs; the labor market, not the government, is the problem and so the government should intervene.

An all too common occurrence in US policy is that government intervention causes a problem that the government then tries to solve with more intervention, completely ignoring the possibility that the initial intervention was the source of the problem. In this case, price controls at the bottom of the labor-market ladder have prevented young people from getting on the first rung, so now the government wants to roll over a $5.5 billion dollar taxpayer-funded stool to give them a boost.

Government programs rarely achieve their goal so there is good reason to be skeptical of this one, especially since it fails to address the root cause of the problem. A better, more effective solution for helping teenagers gain valuable job skills would be to set the minimum wage at the proper level of $0 and let the labour market work.

Cross-posted from Mercatus.org.

Adam Millsap

Adam Millsap is a PhD student in economics and a graduate instructor at Clemson University in South Carolina. His research interests are in urban economics and public choice theory. He is currently working in Washington, D.C. as an economic policy intern at the Reason Foundation.

A Tax on Income Attacks Life Itself by Jeffrey Tucker

The least of the problems with income tax is that it takes your money. The really big problem is that the income tax takes your life. It gives the government direct access to the things you own and sets up the political-bureaucratic sector to be the final arbiter of what you can and cannot consider to be yours.

Illustrating this point is the bitter realization that the IRS considers it completely legal to demand access to your electronic communications whenever it wants. This news came about in 2013 because of a Freedom of Information Act request filed by the American Civil Liberties Union.

The filing unearthed a 2009 memo that stated outright: “The Fourth Amendment does not protect communications held in electronic storage, such as email messages stored on a server, because Internet users do not have a reasonable expectation of privacy in such communications.”

Forget search warrants and legal processes. In the interest of getting its share, the government can have it all on demand. This assertion was made again in 2010 by the IRS’s chief counsel: The “Fourth Amendment does not protect emails stored on a server” and there is “no privacy expectation” on email.

A Century of Intrusions

This assertion openly contradicts a 2010 legal decision from the Sixth US Circuit Court of Appeals. United States v. Warshak said that the government must obtain a probable cause warrant before forcing people and providers to cough up email archives. Granted, even that’s not much protection. Government always has its “probable cause.”

Good for the ACLU for making an issue of this. But at some level, it’s all beside the point. The problem isn’t the legal process that allows the government to do what it wants; the problem is that government has a hook into personal income that allows powerful people to have their way with the whole of your life.

As we look back at the history, we can see that the income tax enabled a century of intrusions into our lives. It’s been 100 years of a form of imposition that no American in most of the 19th century could have ever imagined or tolerated.

The income tax is what enabled Prohibition, for example. Without the ability to monitor and adjudicate how people made money, the power of enforcement would not have been there at all. (Remember that Al Capone was not convicted for bootlegging, but for tax evasion.)

It is what made possible the central planning of the New Deal. The government’s presumption that it owns the first fruits of labor gave rise to wage controls and mandatory participation in the Social Security system. It allowed the central planners to push aside young workers and tell them that they aren’t allowed to be part of the workforce. It allowed the introduction of the minimum wage that continues to shut out whole sectors of society.

And look what happened during World War II. The price controls on wages and salaries – made possible only because the income tax gave government a fiduciary interest – inspired companies to start offering health-care benefits as part of the compensation package.

That practice was intensified over the decades until it became mandatory. That practice is a major source of the health care problems we have today. So there we have it: There is a direct link from Obamacare today back to the income tax of 100 years ago.

The Root of All Evil

Frank Chodorov, author of the enduring masterpiece, was right to call the income tax the “root of all evil.” We look back to history and are in awe that anyone ever had the full right to earn whatever money he or she wanted to and to never have to tell the government about it. But that was the way it was for the dominant part of American history.

That’s the system once called freedom.

It’s striking when you realize just how completely unnecessary the income tax is for the funding of government. What if we cut back government spending by exactly the amount the income tax collects? That would take us back in time to 2006. Was the government really too small back then? Would society really collapse if we went back to a government we had just ten years ago?

Yes, the government likes our money and always wants more of it. But more crucially, the government uses the income tax as a primary means of controlling not just our money, but the whole of our lives. That’s the real purpose of the income tax and why the government will fight for its preservation to the end.

Right now, many Americans are sweating it out to get their taxes done in time for the filing deadline. It would be immeasurably hard without the brilliant companies that have put together software programs – updated constantly! – that make what would otherwise seem impossible rather easy. This is the type of thing that free enterprise and the private sector do. They help us to have better lives.

But government? What does it do? It takes. It snoops. It controls. It destroys.

Jeffrey A. TuckerJeffrey A. Tucker

Jeffrey Tucker is Director of Digital Development at FEE and CLO of the startup Liberty.me. Author of five books, and many thousands of articles, he speaks at FEE summer seminars and other events. His latest book is Bit by Bit: How P2P Is Freeing the World.  Follow on Twitter and Like on Facebook. Email.

2016 Is the Year of Inequality – And Prosperity by Chelsea German

This past weekend, the Economist uploaded a short video to its Facebook page called, “The year of the 1 percent.” The video shows a graph superimposed over the Earth seen from space, while a voice narrates, “2016 is set to be a more unequal world than ever before. For the first time, the richest 1 percent of the population will enjoy a greater share of global wealth than the other 99 percent.”

The Economist’s graph reminded me of another graph, which also shows two lines that eventually cross but tells a very different story. Despite population growth, there are fewer people living in extreme poverty today than ever before:

How can both graphs be accurate? Poverty can decline even as inequality rises, as long as the total amount of wealth in the world is growing.

To ignore this is to fall prey to the “fixed pie fallacy.” Throughout most of human history, global wealth hardly changed. But thanks to trade and industrialization, wealth has skyrocketed, especially since the 1900s, and continues to climb.

At the same time, technological advances have also increased human wellbeing in ways not captured by looking at GDP alone.

Because the pie is growing, focusing solely on inequality, like the Economist’s video does, makes little sense. Most of us would rather have a relatively small slice of a gigantic pie than the biggest slice of a microscopic pie.

In other words, most of us would rather be wealthier in absolute terms, regardless of our relative position. This is why many of us, if given the choice, would choose to be an ordinary person today, instead of a member of the upper crust a century ago or a 17th century king.

Cross-posted from HumanProgress.org.

Chelsea GermanChelsea German

Chelsea German works at the Cato Institute as a Researcher and Managing Editor of HumanProgress.org.

The 50-Year Disaster of Government Trains, Buses, and Streetcars by Daniel Bier

Today, Less than 2% of Trips Use Public Mass Transit.

Ronald Reagan once quipped that “government’s view of the economy could be summed up in a few short phrases: If it moves, tax it. If it keeps moving, regulate it. And if it stops moving, subsidize it.”

There, in a nutshell, you have a short history of mass transit in America. CEI’s Marc Scribner explains,

Following decades of excessive local government fare regulation that led to a terminal decline in the private mass transit industry, government began taking over the responsibilities performed by now-bankrupt private mass transit companies following the Urban Mass Transportation Act of 1964.

Over the span of a decade, the mostly-private mass transit industry was replaced by government transit monopolies.

As a result, for the last several decades, government at all levels has spent trillions on mass transit, subsidizing fares, expanding lines, and building vast new rail systems. Today, transit consumes more than 25 percent of all surface transportation funds (which mostly come from non-transit users through gas taxes).

What was the result of this tidal wave of taxpayer cash?

Despite receiving more than one-fourth of the funding, mass transit still represents less than 2 percent of trips taken nationwide. Even when one looks only at commuting, where trains and buses do best, mass transit’s national mode share is less than 5 percent — down from more than 6 percent in 1980.

That’s right: after receiving a massive and disproportionate share of taxpayer funding, totaling trillions of dollars, transit’s share of commutes declined.

But government transit monopolies keep lobbying for more and more funding. They claim the real problem is that public transit systems haven’t been expanded enough to draw more people into using them. Scribner calls this theField of Dreams theory: “If you build it, they will come.

The problem with this theory is that it’s bogus. Research from Steven Polzin shows that the capacity of transit networks, including buses, streetcars, and trains, has nearly tripled since 1970, while absolute ridership has grown by just a fraction of that. Transit trips per capita have been dead flat since the 1970s.

Polzin writes, “Supply has grown far more rapidly than demand for the past several decades. This is a report card on productivity that mom and dad would hardly be proud of.”

Meaning: we built it; they didn’t come.

Scribner concludes,

The trillions spent on mass transit have given governments many more empty buses and trains, but very little in terms of additional ridership. …

Mass transit can serve a very important, albeit narrow, purpose for people in limited settings. There is a reason that 40 percent of all US mass transit trips take place in the New York City metro area.

But it is wholly irresponsible for politicians to continue mass transit’s taxpayer gravy train, which is based on less substance than Kevin Costner’s dramatized auditory hallucinations.

When the next flashy transit project comes to your town, remember to be skeptical. Proponents of light rail, streetcars, and other hugely expensive projects routinely overestimate how many people will use the line and underestimate how much it will cost to build and run. Decades of evidence shows that if you build it, people will still probably drive — and you’ll still be stuck paying for it.

Daniel BierDaniel Bier

Daniel Bier is the editor of FEE.org. He writes on issues relating to science, civil liberties, and economic freedom.

Why We Need to Make Mistakes: Innovation Is Better than Efficiency by Sandy Ikeda

“I think it is only because capitalism has proved so enormously more efficient than alternative methods that is has survived at all,” Milton Friedman told economist Randall E. Parker for Parker’s 2002 book, Reflections on the Great Depression.

But I think innovation, not efficiency, is capitalism’s greatest strength. I’m not saying that the free market can’t be both efficient and innovative, but it does offer people a strong incentive to abandon the pursuit of efficiency in favor of innovation.

What Is Efficiency?

In its simplest form, economic efficiency is about given ends and given means. Economic efficiency requires that you know what end, among all possible ends, is the most worthwhile for you to pursue and what means to use, among all available means, to attain that end. You’re being efficient when you’re getting the highest possible benefit from an activity at the lowest possible cost. That’s a pretty heavy requirement.

Being inefficient, then, implies that for a given end, the benefit you get from that end is less than the cost of the means you use to achieve it. Or, as my great professor, Israel Kirzner, puts it, If you want to go uptown, don’t take the downtown train.

What Is Innovation?

Innovation means doing something significantly novel. It could be doing an existing process in a brand new way, such as being the first to use a GPS tracking system in your fleet of taxis. Or, innovation could mean doing something that no one has ever done before, such as using smartphone technology to match car owners with spare time to carless people who need to get somewhere in a hurry, à la Uber.

Innovation, unlike efficiency, entails discovering novel means to achieve a given end, or discovering an entirely new end. And unlike efficiency, in which you already know about all possible ends and means, innovation takes place onlywhen you lack knowledge of all means, all ends, or both.

Sometimes we mistakenly say someone is efficient when she discovers a new way to get from home to work. But that’s not efficiency; that’s innovation. And a person who copies her in order to reduce his commute time is not an innovator — but he is being efficient. The difference hinges on whether you’re creating new knowledge.

Where’s the Conflict?

Starting a business that hasn’t been tried before involves a lot of trial and error. Most of the time the trials, no matter how well thought out, turn out to contain errors. The errors may lie in the means you use or in the particular end you’re pursuing.

In most cases, it takes quite a few trials and many, many errors before you hit on an outcome that has a high enough value and low enough costs to make the enterprise profitable.) Is that process of trial and error, of experimentation, an example of economic efficiency? It is not.

If you begin with an accurate idea both of the value of an end and of all the possible ways of achieving that end, then you don’t need to experiment. Spending resources on trial and error would be wasteful. It’s then a matter of execution, which isn’t easy, but the real heavy lifting in the market process, both from the suppliers’ and the consumers’ sides, is done by trying out new things — and often failing.

Experimentation is messy and apparently wasteful, whether in science or in business. You do it precisely because you’re not sure how to answer a particular question, or because you’re not even sure what the right question is. There are so many failures. But in a world where our knowledge is imperfect, which is the world we actually live in, most of what we have to do in everyday life is to innovate — to discover things we didn’t know we didn’t know — rather than trying to be efficient. Being willing to suffer failure is the only way to make discoveries and to introduce innovations into the world.

Strictly speaking, then, if you want to innovate, being messy is unavoidable, and messiness is not efficient. Yet, if you want to increase efficiency, you can’t be messy. Innovation and efficiency usually trade off for each other because if you’re focused on doing the same thing better and better, you’re taking time and energy away from trying to do something new.

Dynamic Efficiency?

Some have tried to describe this process of innovation as “dynamic efficiency.” It may be quibbling over words, but I think trying to salvage the concept of efficiency in this way confuses more than it clarifies. To combine efficiency and innovation is to misunderstand the essential meanings of those words.

What would it mean to innovate efficiently? I suppose it would mean something like “innovating at least cost.” But how is it possible to know, before you’ve actually created a successful innovation, whether you’ve done it at least cost? You might look back and say, “Gee, I wouldn’t have run experiments A, B, and C if only I’d known that D would give me the answer!” But the only way to know that D is the right answer is to first discover, through experimentation and failure, that A, B, and C are the wrong answers.

Both efficiency and innovation best take place in a free market. But the greatest rewards to buyers and sellers come not from efficiency, but from innovation.

Sandy IkedaSandy Ikeda

Sandy Ikeda is a professor of economics at Purchase College, SUNY, and the author of The Dynamics of the Mixed Economy: Toward a Theory of Interventionism. He is a member of the FEE Faculty Network.

Stock Market Returns Can Be Impacted By Which Party Wins in 2016

BOCA RATON, Florida., April 13, 2016 /PRNewswire-USNewswire/ — Which party wins the United States presidential election in November could have a major impact on how investors play the stock market for years to come, says a Florida Atlantic University College of Business professor who has studied the financial implications of more than four decades of political power struggles.

These findings are outlined in the paper, “What To Expect When You’re Electing,” published in the journal Managerial Finance, and are based on an analysis of security market returns relative to the political party of the president, the Federal Reserve’s monetary policy, the year of the president’s term and the state of political gridlock.

It found that political harmony – when the same party controls Congress and the White House – is better for the stock market than political gridlock.

“The conventional wisdom is gridlock is good for the market, but actually the data show the opposite,” said Luis Garcia-Feijoo, Ph.D., a professor of finance at FAU and the study’s co-author. “In fact, market returns are higher when there’s harmony, not gridlock.”

The study also found that stock market returns are higher during the third year of a president’s term — which means investors should have something to look forward to in 2019 regardless of who wins the White House in November.

Additionally, this and several other studies have found that overall stock market returns are better under Democratic presidential administrations.

“It’s not just this paper, it’s others, and they all find the same thing – that having a Democrat in the White House is better for the equity market,” Garcia-Feijoo said. “A Republican president has been historically better for bond markets.”

Garcia-Feijoo found in this study that the main driver for stock market returns may be monetary policy. Under an expansive policy – when the Fed lowers interest rates or buys Treasury bonds to inject capital into the economy – stocks tend to perform better.

Garcia-Feijoo produced “What To Expect When You’re Electing” with Scott B. Beyer, Ph.D., professor and interim dean at the University of Wisconsin-Oshkosh College of Business, Gerald R. Jensen, Ph.D., professor of finance at Creighton University’s Heider College of Business, and Robert R. Johnson, Ph.D., president and CEO of the American College of Financial Services.

Where Do The U.S. Presidential Candidates Stand On Human Rights In Trade Agreements?

WASHINGTON, D.C. /PRNewswire-USNewswire/ — As the candidates for the next president of the United States head to the Northeast for the New York State primary on April 19th, the topic of human rights has not been a focal point in the presidential conversation.  President Obama’s signing of the Trans-Pacific Partnership (TPP) deal on February 4th this year made few headlines, despite its massive implications on millions of U.S. and foreign workers. Yet fair trade, labor, and human rights are issues critical to everyone in America – Republicans, Democrats, and independents alike – and are fundamentally rooted in American values.  To quote U.S. Senator Elizabeth Warren (D-Mass.), the TPP is “a trade agreement that affects jobs, environmental regulations, and whether workers around the globe are treated humanely …This trade agreement doesn’t matter to just the biggest corporations – it matters to all of us.”

In Malaysia, one of the TPP signatories, modern-day slave labor practices were uncovered in its electronic factories as recently as 2014.  In Brunei, another signatory, being homosexual is punishable by death.  Some of America’s trade partners in the Middle East have faced international criticism for a wide range of high-profile human rights abuses.  Reputable media outlets have reported that every week in the State of Qatar, approximately 29 migrant workers die – total deaths are estimated to ultimately total around 4,000 – building the 2022 FIFA World Cup soccer facilities in Doha as a result of deplorable working conditions.  Thousands more across Asia and the Middle East will suffer other horrifying abuses, as workers across business sectors have no protections, and can be legally held in indentured servitude.  All of these abuses bring into serious question how much trade the U.S. should have with nations that oppress human rights, and what sort of protections should be in agreements for the U.S. to enforce.

The mistreatment of international labor workers and human rights issues haven’t been discussed much during this election cycle, in spite of the fact that American companies and American workers are competing every day against slave labor.  The Alliance for Workers Against Repression Everywhere (AWARE), a multi-constituency effort working to bring national attention to human rights and American policies that can defend or destroy them, calls on Hillary Clinton, Bernie Sanders, Donald Trump, John Kasich, and Ted Cruz to consider labor and human rights abuses when working with America’s trade partners.  They should each ask themselves: “Does the United States want to do business with a company or a nation that oppresses labor and human rights? Do we want our businesses and workers competing against slave labor?”

Headed by progressive veteran Mike Lux, AWARE has a specific focus on the rights of oppressed workers. “Consumers are beginning to speak with their wallets and not do business with foreign nations and companies that offer absolutely no worker protections,” said Lux.  “Many are choosing not to buy products and goods from nations and companies with blood on their hands.  The U.S. government is in a position to do a tremendous amount for workers by employing the same tactic – let’s not engage in trade unless protections for workers are both firmly in place and actually enforced.”

The best American business strategies are those that treat their workers with dignity and give them high enough wages so that they have money in their wallets.  What’s good for American workers is good for workers everywhere, which is why it’s crucial we hear from our future leaders on these topics.

aware logoABOUT AWARE

AWARE is calling for the conversation around labor and human rights to happen now on the public stage of the presidential election. To learn more or to help continue the conversation, visit: allianceforworkers.org or @Alliance4Wrkrs #humanrights

California’s $15 Minimum Wage Is a Terrible, Unethical ‘Experiment’ by David R. Henderson

The law will have devastating consequences, particularly for immigrants, minorities, and the less educated.

In yesterday’s Washington Post, Charles Lane reports on the move, that’s almost a done deal, to raise California’s minimum wage in stages to a whopping $15 an hour by 2022. Lane, or his editors, wisely titled the article, “The risks of California’s minimum-wage increase.”

Lane writes:

By 2022, when fully phased in (small firms with fewer than 25 workers would have until 2023 to comply), the California minimum wage would represent 69 percent of the median hourly wage in the state, assuming 2.2 percent annual growth from the current median of roughly $19 per hour.

That 69 percent ratio would be all but unprecedented, in U.S. terms and internationally. The current California minimum wage represents about half the state’s median hourly wage, just as the federal minimum wage averaged 48 percent of the national median between 1960 and 1979, according to a 2014 Brookings Institution paper by economist Arindrajit Dube. (It is currently 38 percent of the national median.)

Other industrial democracies with statutory minimum wages typically set theirs at half the national median wage, too.

Even Dube recommends a minimum wage equal to half the median wage. One that’s 69 percent of the minimum wage is 38% higher than the level Dube recommends.

So Dube would oppose such an increase, right?

Wrong. Assuming that Lane reported Dube’s response accurately, he favors the increase. Why? Lane writes:

He [Dube] told me by email that California’s experiment is worth running and monitoring.

But these are humans being experimented on. Worth monitoring? Absolutely. Worth running? No damn way.

Economist Jonathan Meer, whose work Lane also cites, writes on Facebook (I am quoting with permission):

Playing with the March CPS [Current Population Survey], I find that a whopping 11% of young high school dropouts in California have a full time job. 85% of all high school dropouts in California are paid $15 an hour or less.

Among young (under 30) high school dropouts, that number is 96%.

Among *all* black and Hispanic respondents under 30 (irrespective of education), 90% are paid $15/hr or less.

This will not be good.

Cross-posted from Econlog.

David R. HendersonDavid R. Henderson

David Henderson is a research fellow with the Hoover Institution and an economics professor at the Graduate School of Business and Public Policy, Naval Postgraduate School, Monterey, California. He is editor of The Concise Encyclopedia of Economics (Liberty Fund) and blogs at econlib.org.

Small business desperately seeking candidate to grow the economy, cut taxes/healthcare costs

NEW YORK, NY /PRNewswire/ — A new survey released today by OnDeck® (NYSE: ONDK), the leader in online lending for small business, found that as the presidential primary progresses, small business owners are losing faith in candidates on both sides of the aisle. The survey is the second from OnDeck examining the attitudes of small business owners tied to the 2016 presidential election and reveals that 34 percent do not have confidence in any of the current candidates, up from 25 percent in a survey taken last fall.

With declining faith in the current crop of presidential candidates, small business owners surveyed expressed nostalgia for a past U.S. president they deemed a friend to small business: Ronald Reagan. The 40th President was overwhelmingly selected by more than four in ten small business owners (42 percent) as the best president for small business, trailed by Bill Clinton (17 percent) and President Barack Obama (14 percent). For more top findings, see OnDeck’s Small Business and the Election infographic:

SMBElectionIIv2c032316

Navigating an Uncertain Political Climate

According to the OnDeck survey, small business owners are looking to candidates this election season to address three critical issues: economic growth (67 percent), tax policy (46 percent) and healthcare costs (35 percent).  In order to help small businesses in the near term, some respondents would like to see the federal government cut taxes (36 percent), reduce healthcare costs (19 percent), invest in infrastructure improvement (13 percent), and cease increases in the minimum wage (13 percent).

“Small business owners are keenly interested in this year’s presidential election as they grapple with some big issues tied to economic growth and health care costs,” said James Hobson, Chief Operating Officer at OnDeck. “Given their active participation in past presidential elections, candidates would be wise to engage this vast voting constituency of 28 million small business owners.”

Small Business Owners Get Out the Vote 

The OnDeck survey indicates that as a population, small business owners are actively engaged in the electoral process. In fact, nine in 10 business owners say they voted in the last presidential election. Nearly all small business owner respondents (95 percent) are registered voters, three in 10 made a donation to a Democrat or Republican candidate in the last election and a quarter have already made a political donation during this primary election season.

When asked to select the presidential contender who they think has the best interests of small business in mind, Donald Trump (37 percent), Bernie Sanders (28 percent), and Hillary Clinton (16 percent) topped the list.

Survey Methodology

This survey of 531 small business owners was conducted online via Facebook between February 29 and March 14, 2016.

About OnDeck

OnDeck (NYSE: ONDK) is the leader in online small business lending. Since 2007, the company has powered Main Street’s growth through advanced lending technology and a constant dedication to customer service. OnDeck’s proprietary credit scoring system – the OnDeck Score® – leverages advanced analytics, enabling OnDeck to make real-time lending decisions and deliver capital to small businesses in as little as 24 hours. OnDeck offers business owners a complete financing solution, including the online lending industry’s widest range of term loans and lines of credit. To date, the company has deployed over $4 billion to more than 45,000 customers in 700 different industries across the United States, Canada and Australia. OnDeck has an A+ rating with the Better Business Bureau and operates the educational small business financing website www.businessloans.com. For more information, please visit www.ondeck.com.

Try Everything! Shakira Is Right by Jeffrey Tucker

Once again, Disney has knocked it out of the park with a wonderfully catchy song at the end of its latest hit movie. The film is “Zootopia,” the inspirational story of a rabbit with ambitions to stretch her professional goals beyond prevailing familial and social expectations.

The hit song, “Try Everything,” is performed by Shakira. It does more than sum up the film’s inspiring message for individuals. It highlights crucial features of the social order and structure of the world around  that social science has mistakenly denied for longer than a century. It turns out that this song — a seemingly superficial pop song marketed to kids — represents a fundamental attack on the prevailing model of science and politics, as constructed by the ruling class of many generations, and completely upends it.

The music is upbeat. The song is joyful. The mood is celebratory. And yet the lyrics begin with a clear announcement: “I messed up tonight, I lost another fight.” This is the first clue that we are about to learn something counterintuitive. Why, with such a joyful tune, are the words about “falling down” and “hitting the ground?”  Why should anyone be happy about messing up?

The answer comes quickly: “I always get up now to see what’s next.”

There are layers to this question of what’s next. That we must seek to know the future at all points to a fundamental truth that we can either treat as terrifying or hopeful.

On the individual level, our skills are improved with every attempt that ends in failure because we toss out the failed pattern in search of a new successful pattern. We don’t necessarily know the path forward. But trying strategies and failing at least gets us closer to what might be true, if only by the process of elimination. Our skills are trained. More importantly, our sense of judgment over what works and what doesn’t undergoes gradual refinement.

Entrepreneurship

Here we see the essence of entrepreneurship, and probably its most salient feature: one that makes real-world business far different from how it is described in textbooks. There is no instruction manual, no sure-fire method for commercial success. The entrepreneur is the driving force of an ongoing discovery process. The process might be compared to entering a pitch-black room and searching for the light switch. You crawl along the wall, vaguely intuiting where that switch might be. You know only a few things: it is not likely low to the ground and not likely too high to reach. But these clues don’t tell you precisely where it is.

Ludwig von Mises described the honing of the entrepreneurial intuition as ever further refinements in understanding (a translation of the richer and more subtle German word “verstehen”). “Understanding,” he wrote, “can approach the problem of forecasting future conditions. We may call its method unsatisfactory and the positivists may arrogantly scorn it. But such arbitrary judgments must not and cannot obscure the fact that understanding is the only appropriate method of dealing with the uncertainty of future conditions.”

Failure as Value

A crucial feature of success is failure as a necessary antecedent and precondition. Because failure is the signal you actually experience in the course of refining one’s judgement, it might be said to be the most valuable feature of entrepreneurship. Indeed, venture capitalists have discovered this. They are far more likely to fund your project if you have had a series of failures. As the Harvard Business Review wrote in “The Value of Failure”: “Many venture capital firms look for entrepreneurial leaders with a failed start-up or two under their belt, for the lessons learned. Indeed, a hot business strategy these days is ‘intelligent fast failure.’”

Or as the song says: “Birds don’t just fly, they fall down and get up. Nobody learns without getting it wrong.”

What is the standard of successful and unsuccessful choices? In a world without institutions and feedback mechanisms, we wouldn’t have one. If the light switches in that dark room of uncertainly didn’t actually function to illuminate the spaces, we would have no way of knowing. Fortunately, in a market economy, we have prices as the key indicators, the building blocks of a system of accounting that reveals profit and loss. And herein we find the signaling mechanism to provide the critical information we need.

Anything that disables or distorts that signaling system represents a vital threat to the capacity of our experiences to yield actionable results. Without prices that reflect market realities, we are left with guessing whether our actions are successful or unsuccessful. It is as if the bird is suddenly disabled in its capacity to know whether it is flying or sitting on the ground. That bird no longer possesses the personal capacity for learning.

Ceaseless Change

At some point, the bird analogy breaks down, because the bird only has one task and one skill to master in pursuing its goal. Humankind faces an ever-changing environment, multifarious and competing goals, and must master an ever-changing range of skills.

On the way toward gaining ever-greater expertise in certain tasks, an individual can refine intuitions and judgements. You can find yourself further along the path toward achieving the goal. But the fundamental fact of the future’s uncertainty is ubiquitous and inalterable. The possibility of further failure must become part of the expectation for all action.

As Shakira’s sings: “Though I’m on the lead, I wanna try everything, I wanna try even though I could fail.”

Even the most experienced entrepreneur can fail at the next stage, and the best among them are profoundly aware of that.

In this sense, there is no such thing as “market power” that guarantees that the world will work the way the entrepreneur imagines that it should. A great example is the nearly defunct web browser, Microsoft’s Internet Explorer. It was so dominant that the government attempted to break up its supposed monopoly. Far from being unassailably secure, the browser stopped innovating and eventually died at the hands of hungrier and more innovative competition.

The lesson here is that the definition of success is always backward-looking but cannot determine the future.

“I’ll keep on making new mistakes,” sings Shakira. “I’ll keep on trying every day.”

But in the course of this trying, this ceaseless quest for success, we find that we do make progress. And this becomes a source of joy for us, more so than if we had merely followed a preset path with an infallible map laid before us.

“Look at how far you’ve come, you filled your heart with love,” says the song. And yet, in the future, we could indeed “come last.”

Failure is possible, even probable. Still, there’s tomorrow.

Society’s Direction Is Uncertain

On the social level, no one knows for sure “what’s next,” because the structure of the social order builds up in an unpredictable way. Our own individual uncertainty about the path forward is socially shared to make for a world that is similarly groping its way toward ever more successful paths.

In the words of Enlightenment era philosopher Adam Ferguson: “Every step and every movement of the multitude, even in what are termed enlightened ages, are made with equal blindness to the future.” It is precisely for this reason that he concluded that societies cannot be designed to conform precisely to what we desire, but rather emerge as the product of individual actions.

Once you come to terms with the uncertainties of the emergent order, you are left with the profound injunction to “try everything” to find the way forward. This realization inculcates certain habits of mind. One no longer seeks to know all the answers or feels despair in the face of the consciousness that one does not have them. The mature mind is at peace with not knowing, because it has the confidence of knowing that the answer is discoverable and that time and imagination can cause the answer to reveal itself.

A good example is modeled in the work habits of Don Draper, the advertising genius in the television show Mad Men. He is aware of the incompleteness of his knowledge and goes to bed each night with a sense of discomfort (but not despair!) in not knowing. Often a stray remark from one of his colleagues the next day will trigger an epiphany, and the next ad campaign in his brilliant career is born. The source of value in his life is not that he knows but rather that he is determined to seek and test new insights as they occur to him along the way.

But what kind of society do we need in order to maximize the potential of this form of spontaneous development of individuals and societies? A society hobbled by preset agendas emanating from fixed regulations and laws presume the opposite of a trial-and-error society. They indulge the illusion of knowledge, the myth of certainty, the fantasy that a static order with known solutions can be forced on everyone.

The Anarchism of Shakira

Here we find the core failing of much of 20th century politics and social policy. The state attempted to forge a society with a point rather than permit the process of discovery to take its own course. The planning elite attempted to impose what F.A. Hayek (following Michael Oakeshott) has called a “teleocratic” order: a society with a defined end state designed by intellectuals operating outside the social process. This is in contrast to a “nomocratic” order that provides broad rules for behavior and otherwise defers to the learning process of innovation and individual action.

In a nomocratic order, there is no end state, no precise form that we imagined history is driving toward, and thus do we find meaning to the words of the song: “I won’t give up, no I won’t give in, Till I reach the end. And then I’ll start again.”

Hayek further elaborates on why a society based on the principle of “try everything” is nothing to regret; it creates an opportunity for the emergence of an ever-more beautiful world:

It is through the mutually ad­justed efforts of many people that more knowledge is utilized than any one individual possesses or than it is possible to synthesize intellectually; and it is through such utilization of dispersed knowledge that achievements are made possible, greater than any single mind can foresee. It is be­cause freedom means the renun­ciation of direct control of in­dividual efforts that a free society can make use of so much more knowledge than the mind of the wisest ruler could comprehend.

Thus do we see how a catchy pop song reveals core truths about the world around us: more grounded in reality than what has been taught by all the social sciences studies at the best universities for the last 100 years. Pop music, by seeking connection to people’s intuitions about their real lives, as measured by playlists and profitability, can embody a brilliance that eludes the most highly trained philosophical minds.

Jeffrey A. TuckerJeffrey A. Tucker

Jeffrey Tucker is Director of Digital Development at FEE and CLO of the startup Liberty.me. Author of five books, and many thousands of articles, he speaks at FEE summer seminars and other events. His latest book is Bit by Bit: How P2P Is Freeing the World.  Follow on Twitter and Like on Facebook. Email.

Do European Labor Laws Lead to Terrorism? by Alex Tabarrok

Why are there poor Muslim ghettos in Europe but not in the United States?

In Belgium, high unemployment and crime-ridden Muslim ghettos have fomented radicalism, but as Jeff Jacoby writes:

Muslims in the United States … have had no problem acclimating to mainstream norms. In a detailed 2011 survey, the Pew Research Center found that Muslim Americans are “highly assimilated into American society and … largely content with their lives.”

More than 80 percent of US Muslims expressed satisfaction with life in America, and 63 percent said they felt no conflict “between being a devout Muslim and living in a modern society.”

The rates at which they participate in various everyday American activities — from following local sports teams to watching entertainment TV — are similar to those of the American public generally. Half of all Muslim immigrants display the US flag at home, in the office, or on their car.

Jacoby, however, doesn’t explain why these differences exist. One reason is the greater flexibility of American labor markets compared to those in Europe.

Institutions that make it more difficult to hire and fire workers or adjust wages can increase unemployment and reduce employment, especially among immigrant youth. Firms will be less willing to hire if it is very costly to fire. As Tyler and I put it in Modern Principles, how many people will want to go on a date if every date requires a marriage?

The hiring hurdle is especially burdensome for immigrants given the additional real or perceived uncertainty from hiring immigrants. One of the few ways that immigrants can compete in these situations is by offering to work for lower wages. But if that route is blocked by minimum wages, or requirements that every worker receive significant non-wage benefits, unemployment and non-employment among immigrants will be high — generating disaffection, especially among the young.

Huber, for example, (see also Angrist and Kuglerfinds:

Countries with more centralized wage bargaining, stricter product market regulation and countries with a higher union density, have worse labour market outcomes for their immigrants relative to natives even after controlling for compositional effects.

The problem of labor market rigidity is especially acute in Belgium, where the differences between native and immigrant unemployment, employment and wages are among the highest in the OECD. Language difficulties and skills are one reason, but labor market rigidity is another, as this OECD report makes clear:

Belgian labour market settings are generally unfavourable to the employment outcomes of low-skilled workers. Reduced employment rates stem from high labour costs, which deter demand for low-productivity workers…

Furthermore, labour market segmentation and rigidity weigh on the wages and progression prospects of outsiders. With immigrants over-represented among low-wage, vulnerable workers, labour market settings likely hurt the foreign-born disproportionately. …

Minimum wages can create a barrier to employment of low-skilled immigrants, especially for youth. As a proportion of the median wage, the Belgian statutory minimum wage is on the high side in international comparison and sectoral agreements generally provide for even higher minima. This helps to prevent in-work poverty … but risks pricing low-skilled workers out of the labour market (Neumark and Wascher, 2006).

Groups with further real or perceived productivity handicaps, such as youth or immigrants, will be among the most affected.

In 2012, the overall unemployment rate in Belgium was 7.6% (15-64 age group), rising to 19.8% for those in the labour force aged under 25, and, among these, reaching 29.3% and 27.9% for immigrants and their native-born offspring, respectively.

Immigration can benefit both immigrants and natives but achieving those benefits requires the appropriate institutions especially open and flexible labor markets.

This post first appeared at Marginal Revolution.

Alex TabarrokAlex Tabarrok

Alex Tabarrok is a professor of economics at George Mason University. He blogs at Marginal Revolution with Tyler Cowen.

How the Minimum Wage Can Kill Job Growth without Eliminating Current Jobs by David R. Henderson

Jonathan Meer and Jeremy West have found that increases in the minimum wage destroy jobs, not so much by destroying current jobs as by reducing the growth rate of new jobs.

That makes sense if employers’ investments in capital are even partially irreversible, that is, if some costs of capital investment are sunk, as seems plausible.

Here’s a simple numerical example to illustrate the point.

Imagine that an employer is contemplating investing $100K in the price and installation of a piece of machinery that he expects to last 5 years. Assume for simplicity that once it is bought and installed, the salvage value is zero. (Numbers greater than zero work also, but complicate the analysis, with no additional insight.)

Assume that the current minimum wage is $7 an hour and that the employer contemplates hiring a worker for a standard work year of 2,000 hours. At that wage rate, he can find a suitable worker. Assume that there are no other components of the pay package and that there are no other costs of production. Assume that the employer expects to be able to sell the annual output from the machine/worker combination for $37,000. Assume, for simplicity, a zero real interest rate. (That, by the way, is often a bad assumption but in recent years, it is not far off.)

If the employer expects no increases in wages over the next 5 years, will he make the investment? Yes.

The reason is that his costs over the 5 years are $100K for equipment and $70K for labor, for a total of $170K. His revenues are $185K. Net profit: $15K.

But now imagine that after 2 years of operating profitably, the employer faces a minimum wage of $10 an hour.

Had he known this in advance, he would have known that his cost of labor over the 5 years would have been $14K + $14K + $20K + $20K + $20K = $88K. So his total costs would have been $188K. Compare that to the $185K of revenue and the employer would not have invested.

But the employer has invested. The equipment cost is sunk. Will the employer continue? Yes, he will. The reason: he now compares $20K of annual labor cost to $37K of annual revenue and finds that it is worthwhile to continue.

So he will not lay off the labor.

However, other potential employer/investors facing the same numbers will not make the investment. So whatever growth rate of jobs there would have been will not come about. The growth rate will be lower.

Cross-posted from Econlog.

David R. HendersonDavid R. Henderson

David Henderson is a research fellow with the Hoover Institution and an economics professor at the Graduate School of Business and Public Policy, Naval Postgraduate School, Monterey, California. He is editor of The Concise Encyclopedia of Economics (Liberty Fund) and blogs at econlib.org.

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