The price of everything is everything

Donald J. Boudreaux: Economists’ insights can be mundane & surprising

At first glance, the core insights of economics seem mundane. As something’s cost rises, consumers buy less of it. Producing more clothing requires transferring more resources to textile factories and, hence, away from other uses. When Jen buys a pear from Al for a dollar, she does so because she values the pear more than whatever she otherwise would have purchased with that dollar — and Al values what he will buy with that dollar more than he values the pear.

Pretty straightforward. But what economists do with such “obvious” observations is often mind-blowing.

An important counterintuitive insight was vividly conveyed long ago by my late colleague Gordon Tullock. Asked in the 1960s what government should do to maximize reduction in traffic fatalities, he replied, “Mandate that the steering column of each car be mounted with a steel dagger pointed directly at each driver’s heart.” Initially, that sounds crazy. Yet when you think about it, you realize such daggers would cause drivers to dramatically increase the care they exercise behind the wheel.

Instead of really wanting government to mandate mounted daggers, Gordon was warning government against going too far in mandating safety features such as airbags, seat belts and collapsible steering columns. Just as mandated daggers would lead to more-careful driving, mandated safety features lead to less -careful driving. Safety features truly might reduce highway deaths, but keep in mind the possibility that mandated safety features might have surprising opposite effects.

David Friedman explains another counterintuitive insight: “Economists are often accused of believing that everything — health, happiness, life itself — can be measured in money. What we actually believe is even odder. We believe that everything can be measured in anything.”

What Friedman means is that each of us routinely makes trade-offs among things that seemingly can’t be compared. Consider your enjoyment from going to a concert. Getting there conveniently requires driving. Yet by doing that instead of staying home, you raise your chance of being killed in an auto accident. If you nevertheless drive there, you conclude that the added enjoyment you expect from the concert is worth more than the added safety you’d experience by staying home. That is, you compare the experience of a concert to the risks of driving. Obviously, if the risk of being killed while driving there were high enough, you’d decide to stay home.

Another example: You buy a jacket, telling friends it “cost” you $100. But your statement is inaccurate. When you gave, say, five $20 bills to the clerk, what you really gave up wasn’t five pieces of paper engraved with Andrew Jackson’s portrait. What you really gave up is whatever you otherwise would have bought with those five pieces of paper.

Suppose that, had you not bought the jacket, you would have bought a meal at a nice restaurant for you and a friend. In this case, you compared a jacket to that restaurant meal.

We humans constantly compare apples to oranges — and choose sensibly between them.

Teen Unemployment and Minimum Wage

From the Mercatus Center at George Mason University

The labor force participation and employment rates of young adults in the United States have declined sharply in recent years, especially among teenagers. The overall decline in the rate of labor force participation since the Great Recession has received a great deal of attention from researchers and policymakers, who focus in large part on trying to gauge whether this decline is permanent and what it implies about how tight the labor market is. However, the decline in labor force participation of young adults has been going on for much longer and does not coincide with swings in economic activity.

David Neumark and Cortnie Shupe consider three possible explanations for the decline in teen employment in the United States since 2000, with a particular focus on those age 16–17: (1) a rising minimum wage that could reduce employment opportunities for teens and potentially also increase the value of investing in schooling; (2) rising returns to schooling; and (3) increasing competition from immigrants. The higher minimum wage is the predominant factor explaining changes in the behavior of teens age 16–17 since 2000. Additionally, no evidence was found to suggest that higher minimum wages for teens leads to higher future earnings; if anything, the evidence points to the opposite effect.

  • Prior literature shows that teen employment has declined much more than the employment rates of those age 20–24 since 2000. These changes were larger for teens age 16–17 than for those age 18–19. The percentage of teens not in the labor force who reported wanting a job fell by almost half between 1994 and 2009, from 24 percent to 13.2 percent.
  • The decline in the number of teenagers in the workforce was owing to increases in teens being exclusively in school, rather than combining school and work.
  • In new results presented in this paper, the authors find that higher minimum wages are associated with a lower share of teens age 16–17 both in school and employed, and a higher share in school and not employed.
  • There is some evidence that changes in the return to schooling and an increase in the share of immigrants employed in the workforce may have contributed to the observed changes in employment and enrollment of teens age 16–17, although these effects are considerably smaller than the estimated minimum wage effects.
  • The study found no positive relationship between higher minimum wages for teens and higher future earnings. The evidence, if anything, says that teens exposed to higher minimum wages since 2000 had acquired fewer skills in adulthood. Thus, it is more likely that the principal effect of higher minimum wages since 2000, in terms of human capital, was to reduce employment opportunities that could enhance labor market experience.

 

Seven principles about immigration

I imagine people will hate these principles taken from a Donald Trump speech.

…seven principles is taken verbatim from his speech:

  1. Illegal immigration is wrong. A primary goal of comprehensive immigration reform must be to dramatically curtail future illegal immigration.
  2. Operational control of our borders, through significant additional increases in infrastructure, technology and border personnel must be achieved within a year of enactment.
  3. A biometric-based employment verification system with tough enforcement and auditing is necessary to significantly diminish the job magnet that attracts illegal aliens to the United States and to provide certainty and simplicity for employers.
  4. All illegal aliens present in the United States on the date of enactment of our bill must quickly register their presence with the United States government and submit to a rigorous process of converting to legal status and earning the path to citizenship, or face imminent deportation.
  5. Family immigration is a cornerstone value of our immigration system. By dramatically reducing illegal immigration, we we can create more room for family immigration and employer-based immigration.
  6. We must encourage the world’s best and brightest individuals to come to the United States and create the new technologies and businesses that will employ countless American workers. But we must discourage businesses from using our immigration laws as a means to obtain temporary and less expensive foreign labor to replace capable American workers.
  7. We must create a system that converts the current flow of primarily low skill illegal immigrants into the United States into a more manageable and controlled flow of legal immigrants who can be absorbed by our economy.

Did I say Trump?
Well, it was actually someone else.
My bad…