Medicare for All

Charles Blahous puts a price on Sanders’s proposed legislation in “The Costs of a National Single-Payer Healthcare System.” These are his key findings.

  • M4A Would Place Unprecedented Strain on the Federal Budget
    By conservative estimates, this legislation would have the following effects:
  • M4A would add approximately $32.6 trillion to federal budget commitments during the first 10 years of its implementation (2022–2031).
  • This projected increase in federal healthcare commitments would equal approximately 10.7 percent of GDP in 2022. This amount would rise to nearly 12.7 percent of GDP in 2031 and continue to rise thereafter.

These estimates are conservative because they assume the legislation achieves its sponsors’ goals of dramatically reducing payments to health providers, in addition to substantially reducing drug prices and administrative costs.

Setting Political Time Bombs

via Setting Political Time Bombs

Politics is one field where an individual or group can take economically foolish actions for which they pay no price, indeed for which they can receive praise and reward, only to leave the aftermath to be blamed on someone else.

Thomas Sowell refers to “intellectuals” as those whose only work product is ideas. In particular, they are those whose ideas are never tested against reality.

In the case of politics, the ideas may well be tested, but if they blow up, it’s never the fault of the shiny program the politicians enacted.

The “time bombs” referred to above deal with the mortgage crisis, but there are lots of time bombs in pace or on the assembly line.

Why inequality is good

Seen on Marginal Revolution:

As I pointed out in my post, Do Boys Have a Comparative Advantage in Math and Science? results like this can explain why there are proportionately fewer women entering STEM fields in richer and more gender-equal countries than in poorer and less gender-equal countries.

One point which many people are missing is that small but growing gender differences with development are only one minor effect of a much bigger phenomena. In a primitive economy, everyone does more or less the same thing, subsistence farming. Only in a market economy under the division of labor can people specialize. Specialization reflects and amplifies diverse personalities and interests. People sometimes complain about “excess” variety in a market economy but do they extend that complaint to careers, arts, and lifestyles? In a market society we get Corn Flakes, Frosted Flakes and Coconut Flakes and we get cardiologists, dermatologists and otolaryngologists and we get Chicago Blues, dub step, and K-Pop and we also get a flowering of sexual preferences and lifestyles. As Mises once said the very idea of personality as we know it today is a result of the market economy. The small gender differences some people focus on are merely the averaging by gender of much larger individual differences. Thus, I would revise the authors:

In sum, greater availability of material and social resources facilitates the independent development and expression of individual-specific preferences, and hence may lead to an expansion of individual differences in more developed and equal-opportunity countries.

 

 

Law Givers, Law Makers, Law Bearers

Cafe Hayek Quotation of the Day for Saturday the Thirteenth:

The early “law-givers” did not make the law they “gave”; they studied social traditions and informal rules and gave voice to them, as God’s, or natural, law. The common lawyer, Sir Edward Coke, championed seventeenth-century social norms as law commanding higher authority than the king. Remarkably, these forces prevailed, paving the way for the rule of law in England. Similarly, the cattlemen’s associations, land clubs, and mining districts in the American West all fashioned their own rules for establishing property rights and enforcing them: the brand on the hindquarters of his calf was the cattlemen’s indelible ownership signature on his property, enforced by gunmen hired through his cattle club; squatter’s rights were defended ably (possession is nine points of the law?) by the land clubs composed of those brave enough to settle wilderness lands in advance of veterans exercising their land script claims, and of settlers under the Homestead Act; mining claims were defined, established, and defended by the guns of the mining clubbers, whose rules were later to become part of public mining law.


DBx: Yes.

No myth is responsible for as much mischief through the ages as is the myth that proclaims that social order must be designed, as if society is a mechanism to be engineered. And no particular instance of this myth is worse than that which insists that law – the rules that govern human interactions – is and can only be the product of the state.

The state makes legislation (including, sometimes, codifications of law). The state never makes law.

This puts human law in the same realm as natural law. When scientists, or earlier, “natural philosophers”, propounded “laws of nature”, they were not drafting legislation. Rather, they were attempting to deduce the underlying laws by which nature ran.

The difference between the human realm and the natural realm is that it’s possible to impose rules (within limits) in the human realm.

Amazon and Minimum Wages

From Marginal Revolution:

What Do We Learn from Amazon and the Minimum Wage?

Amazon’s widely touted increase in its minimum wage was accompanied by an ending of their monthly bonus plan, which often added 8% to a worker’s salary (16% during holiday season), and its stock share program which recently gave workers shares worth $3,725 at two years of employment. I’m reasonably confident that most workers will still benefit on net, simply because the labor market is tight, but it’s clear that the increase in the minimum wage was not as generous as it first appeared.

What lessons does this episode hold for minimum wage research? Amazon increased its wages voluntarily but suppose that the minimum wage had been increased by law. What would have happened? Clearly, Amazon would have, at the very least, eliminated their bonus plan and their stock share plan! In this situation, researchers examining employment data would discover that the increase in the minimum wage did not much lower employment. Such researchers might conclude that minimum wages don’t reduce employment much because the demand for labor is inelastic. The conclusion is correct but the reasoning is false. The correct conclusion and reasoning would be that the minimum wage didn’t reduce employment much because the minimum wage didn’t increase net wages much.

Amazon is a big and newsworthy employer so its actions have been closely monitored but in most cases we never know the myriad ways in which firms respond to a law. Even using administrative data it would be difficult to pick up changes in a stock share plan or a pension plan, as this compensation doesn’t show up in earnings until years after the work is completed. Even a simple employment contract is a complicated bargain with many margins. During the holiday season, for example, Amazon hires a CamperForce of workers who live in RVs and it pays their campsite fees–no big deal, but that is a form of compensation that is hard to find on a W-2. More generally, firms can respond to a minimum wage by changing compensation on non-wage margins, adjusting working conditions, reducing benefits, changing wage growth patterns, and adjusting the type of workers they hire, to give just a few examples–and notice that all of these changes are difficult to measure and none of them have a first-order effect on employment.

Discrimination, Prejudice, and Racism

Walter Williams comments:

So much of our reasoning about race is both emotional and faulty. In ordinary, as well as professional, conversation, we use terms such as discrimination, prejudice, racial preferences and racism interchangeably, as if they referred to the same behavior. We can avoid many pitfalls of misguided thinking about race by establishing operational definitions so as to not confuse one behavior with another.

Discrimination can be operationally defined as an act of choice. Our entire lives are spent choosing to do or not to do thousands of activities. Choosing requires non-choosing. When you chose to read this column, you discriminated against other possible uses of your time. When you chose a spouse, you discriminated against other people. When I chose Mrs. Williams, I systematically discriminated against other women. Much of it was racial. Namely, I discriminated against white women, Asian women, fat women and women with criminal backgrounds. In a word, I didn’t offer every woman an equal opportunity, and they didn’t offer me an equal opportunity.

One might be tempted to argue that racial discrimination in marriage is trivial and does not have important social consequences, but it does. When high-IQ and high-income people marry other high-IQ and high-income people, and to the extent there is a racial correlation between these characteristics, racial discrimination in mate selection enhances the inequality in the population’s intelligence and income distribution. There would be greater income equality if high-IQ and high-income people married low-IQ and low-income people. But I imagine that most people would be horrified by the suggestion of a mandate to require the same.

Prejudice is a perfectly useful term, but it is used improperly. Its Latin root is praejudicium — meaning prejudgment. Prejudice can be operationally defined as making decisions on the basis of incomplete information. Because the acquisition of information entails costs, we all seek to economize on information cost. Sometimes we use cheap-to-observe physical attributes as proxies for some other attribute more costlier to observe. The cheaply observed fact that a person is a male or female can serve as a proxy for an unobserved attribute such as strength, aggressiveness or speed in running.

In the late 1990s, a black taxi commissioner in Washington, D.C., warned cabbies against going into low-income black neighborhoods and picking up “dangerous-looking” passengers whom she described as young black males dressed a certain way. Some pizza deliverers in St. Louis who were black complained about delivering pizzas to black neighborhoods for fear of being assaulted or robbed. In 1993, the Rev. Jesse Jackson was reported as saying that he is relieved when he learns that youthful footsteps walking behind him at night are white and not black.

Here’s the question: Does the wariness of Washington’s predominantly black cabbies to pick up “dangerous-looking” black males or black pizza deliverers’ not wanting to deliver to some black neighborhoods or Rev. Jackson’s feeling a sense of relief when the youthful footsteps behind him are those of white youngsters instead of black say anything unambiguous about whether cabbies, pizza deliverers and Jackson like or dislike blacks? It’s a vital and often overlooked point — namely, that watching a person’s prejudicial (prejudging) behavior alone can tell us nothing unambiguous about that person’s racial tastes or preferences.

Consider policing. Suppose a chief of police is trying to capture culprits who break in to autos to steal electronic equipment. Suppose further that you see him focusing most of his investigative resources on young males between the ages of 15 and 25. He spends none of his investigative resources on females of any age and very few on men who are 40 or older. By watching his “profiling” behavior — prejudging behavior — would you conclude that he likes females and older males and dislikes males between the ages of 15 and 25? I think that it would take outright idiocy to reach such a conclusion. The police chief is simply playing the odds based on the evidence he has gathered through experience that breaking in to autos tends to be a young man’s fancy.

Comparative Advantage, continued

Comparative Advantage is one of those concepts that’s far from intuitive, at least for most people.

Don Boudreaux looks at one case I’d been wondering about, whether it’s possible for one side of a trading partnership to have an advantage in everything.

You ask what you are to make of your roommate’s “fear that China will end up with comparative advantage to produce everything.”

You are to make nothing of this fear other than the fact that it reflects your roommate’s misunderstanding of comparative advantage. It’s impossible for any person, entity, region, country, planet, or galaxy to have a comparative advantage – that is, an advantage compared to potential trading partners – at producing everything. To have a comparative advantage at producing X implies a comparative disadvantage at producing Y.

This reality is best seen with an example involving only two people (Ann and Bob) and two goods (fish and bananas). Suppose that the resources necessary for Ann to use to produce one banana are such that, were she instead to use these resources to catch fish, she’d catch two fish. Ann’s cost of producing one banana is, thus, two fish – which implies that Ann’s cost of catching one fish is one-half of a banana.

As for Bob, suppose that the resources necessary for him to produce one banana are such that, were he instead to use these resources to catch fish, he’d catch one fish. Bob’s cost of producing one banana is, thus, one fish – which implies that Bob’s cost of catching one fish is one banana.

Bob has a comparative advantage over Ann at producing bananas and Ann has a comparative advantage over Bob at catching fish. If Ann and Bob both want to consume fish and bananas, they can both gain if Ann specializes in catching fish and Bob specializes in producing bananas, and then trading with each other.

Suppose now that Ann decides that she wants to have a comparative advantage also at producing bananas. She must then lower her cost of producing bananas to less than Bob’s cost of producing bananas – that is, to less than one fish per banana. But if Ann achieves this goal, she loses her comparative advantage at fishing.

If, for example, Ann becomes so good at producing bananas that each banana that she produces now costs her only one-quarter of a fish, Ann’s cost of catching fish rises from its previous level of one-half of a banana per fish to four whole bananas per fish. Because Bob’s cost of catching fish remains at one banana per fish, if Ann succeeds in gaining a comparative advantage over Bob at gathering bananas she necessarily creates for herself a comparative disadvantage at catching fish – meaning that Ann thereby causes the comparative advantage at catching fish to switch from herself to Bob.

People have many baseless fears about free trade. None is more wrongheaded than is the fear that any one subgroup of people – say, the people of one country – can have a comparative advantage at producing everything.

Someday I may want to sit down with this and see if it’s possible to generate “strange loops” where A>B, B>C, and C>A.

More Welfare for Workers

 

Bernie Sanders billionaire welfare taxation defies all economic logic
Bernie Sanders has officially introduced legislation in Congress aimed at forcing large companies to reimburse the government for providing public benefits to their employees. Targeting Amazon in particular, the Vermont senator recently tweeted, “All over this country, many Amazon employees, who work for the wealthiest person on Earth, are paid wages so low they can’t make ends meet. The American taxpayer should not be subsidizing Jeff Bezos so he can underpay his employees.”

Not only is this proposal unworkable and likely to harm the small number of people it targets, but it also mischaracterizes companies like Amazon and Walmart as reaping the benefits of lower wages, while the government picks up the tab. This argument fails on basic economic principles and ignores investments that many of these companies make in their entry level workers. Rather than “taxing” major companies for giving jobs to low skilled workers, Congress should find ways to make it easier for them to educate and train their entry level workers.

One of the major problems with the proposed legislation is that it assumes that wages are set by the whims of company executives. But in a competitive labor market, wages are set by the supply and demand for labor, not some arbitrary decision making by executives. As economist Arindrajit Dube argued, research shows that benefit programs like food stamps and housing assistance actually reduce labor supply because they make work less attractive, which drives wages up instead of not down. He writes, “The key point is that it is difficult to imagine how food stamps would lower wages. If they don’t lower wages, they can’t be thought of as subsidies to low wage employers.” For the argument that safety net programs “subsidize” employers to ring true, wages would be higher in their absence, something I doubt proponents believe.

[snip]

 

Workers on Welfare

From Bloomberg Opinion:

Senator Bernie Sanders is all set to propose legislation that proposes to put a tax on large businesses with employees who receive benefits from safety-net programs. The idea is simple: If a business isn’t paying enough to keep its employees from qualifying for, say, food stamps and public housing, then the business should be taxed an amount equal to those benefits. If a McDonald’s employee receives $400 in food stamps, then McDonald’s would owe the government $400 in additional taxes.

Fox News host Tucker Carlson thinks this is smart policy. In a tweet last week, Carlson pointed out that Jeff Bezos, founder and CEO of Amazon, is “the richest man in the world. Many of his employees are so poor, you’re paying their welfare benefits.”

[snip]

Whether motivated by concerns about inequality, as the Vermont senator is, or by the increasingly common view on the political right that when it comes to certain corporations, big is bad, both Sanders and Carlson betray a fundamental misunderstanding of economics and of the proper ordering of society.

Forces in a market economy will push the wage earned by workers toward the amount of revenue they generate for their employer. It is simply unrealistic to expect a company to pay, say, $15 per hour to a worker who is only generating $9 per hour of revenue for the business. Under such an arrangement, the company is losing $6 every hour the worker is on the job. That situation is untenable.

My argument may sound off given the amount of attention currently paid in some circles to issues like “market concentration,” “monopsony power” and the like. To be clear, I do not deny that these factors play a role in determining wages. But particularly in the low-wage labor market, a worker’s productivity plays a very important role in determining his wage. And large gaps between wages and productivity are ultimately unsustainable for many workers.

So in some sense, Sanders and Carlson have it exactly backward: Walmart, Amazon and McDonald’s are not being subsidized by taxpayers because some of their employees receive assistance from safety-net programs. Instead, employers of lower-wage workers are surely reducing safety-net rolls. In the absence of these jobs, more people, not fewer, would likely be receiving government assistance.

The logic underlying the claim by Sanders and Carlson also leads to a place that the senator at least probably doesn’t want to go. Sanders argues that if Amazon has employees on Medicaid, then taxpayers are subsidizing Amazon. At the same time, the senator supports single-payer national health care (“Medicare for All”). Should we view any national health-care program as a multitrillion-dollar taxpayer subsidy to business?

Of course not. And we shouldn’t view food stamps as a subsidy to business, either. Doing so reflects a fundamental misunderstanding of how U.S. society has chosen, through politics, to assign different roles to different actors.

And while we’re at it, this from National Review:

Both Senator Bernie Sanders and Fox News host Tucker Carlson have recently slammed Amazon, Walmart, Uber, and other large companies for paying workers and contractors too little. In a withering monologue last week, Carlson claimed that the companies are all effectively subsidized by the taxpayer because many of their employees’ incomes are supplemented by various federal welfare benefits, such as food stamps. Sanders agrees. Yesterday, he introduced legislation (the so-called Stop BEZOS Act) to tax large corporations one dollar for every dollar their workers receive in government food stamps or health-care benefits.

If nothing else, it is amusing that neither Sanders nor Carlson fully acknowledges the logical implications of their position. If Sanders is right that programs such as food stamps modestly subsidize employers who pay low wages, then his hugely expensive Medicare-for-all and free-college-tuition proposals would constitute a massive subsidy to low-wage employers. If Carlson truly believes that large firms have the power to suppress wages below competitive rates, then he should support raising the minimum wage to combat that power — something that he has, in the past, sensibly advocated against.

Snark aside, the pair are simply wrong on the economics of the matter, and shortsighted to boot. An employer’s responsibility is to pay employees for the work they do, not to ensure that they have some societally agreed-upon level of livable household income. Indeed, it is a peculiar worldview that suggests that, when setting wages, a company employing low-skilled workers should ignore the value of the tasks the employee actually undertakes for them.

In competitive labor markets, we usually assume that firms pay workers according to their productivity, the marginal revenue product of their labor. Market wages are determined by where this demand interacts with the supply of workers. Firms can’t underpay workers without losing the best to rivals. Nor can they routinely pay employees for more than they add to company revenue without losing capital to rivals at home and abroad and risking going out of business. There is no evidence that Amazon, Walmart, or Uber have high-enough degrees of labor-market power that they are the single hirer of workers in any one geographical area. For Carlson to imply that their pay rates are evidence purely of corporate greed is the worst form of populism.

There is a basic conundrum hanging over this debate: In a world with no minimum-wage laws, no out-of-work benefits, and no in-work benefits, some workers with low productivity levels would obtain work but find it difficult to live comfortable lives on market income. The real questions then are: Who should help, and if it is the government, will that end up subsidizing firms?

One form of help comes in the form of means-tested programs that apply regardless of work status, such as basic food stamps. These explicitly do not subsidize employers as Sanders and Carlson allege. Actually, we’d imagine that transfers of this kind would have the opposite effect, because they replace income obtained from work: The more you earn, the less in transfers you receive. These programs therefore reduce the supply of workers, by raising the wage people would have to be offered to return to work, which in turn raises market wages if the supply of workers is upward-sloping. Far from a “subsidy,” then, means-tested federal welfare benefits are more like a “tax on employers.”

Indeed, the only forms of welfare that can theoretically subsidize employers through lower wages are transfers that supplement income from work and so increase labor supply, such as the earned-income tax credit (EITC). As a wage subsidy, the EITC encourages more potential workers to seek low-paying employment, because the earnings from that employment plus the subsidy are higher than the means-tested benefits they forfeit by going back to work. The EITC thus increases the labor supply by design, which is great for EITC recipients but can hurt ineligible groups, such as those without children, who see their wage rates fall as a result.

The benefits of such supplemental subsidies are indeed captured by a combination of the employer and all employees. Academic experts Auston Nichols and Jesse Rothstein, using reasonable assumptions, estimate that for every $1 put into the EITC program, employees receive $0.64 of the outlay and employers capture $0.36 owing to reduced market wages. One therefore could, if he were so inclined, call the EITC an “employer subsidy,” though strangely neither Sanders nor Carlson has bothered to mention it at all.

Given that Sanders’s and Carlson’s critique focuses instead on means-tested welfare programs, it makes no sense. Cajoling companies to pay more by imposing high minimum-wage rates or taxing those whose employees receive government assistance would simply make it more difficult for lower-productivity workers to find jobs, putting taxpayers on the hook for more safety-net spending. Only supplementary welfare programs such as the EITC have the effect that Sanders and Carlson describe, and cutting these programs would certainly hurt the workers who rely on them as much as, if not more than, employers.

Does Welfare Subsidize Employers?

Source: The Pitifully Low Wages of Economic Illiteracy – Cafe Hayek

Leo Gertner (Letters, August 27) repeats a favorite trope of the left – namely, that welfare payments received by low-wage workers are really subsidies to employers who allegedly reduce workers’ pay by the amount of government welfare benefits received by these workers. There are several flaws with this trope.

First, it’s backwards. By reducing the economic burden of being unemployed, welfare payments not tied to work requirements reduce the supply of low-skilled labor and, thus, raise – rather than lower – the wages that employers pay to such workers.

Second, it’s at odds with readily observable labor-market realities. If workers reduce their wage demands because they have outside income, then whenever two highly paid professionals marry each other, one of them over time would come to be paid no more than the minimum wage. (Mr. Gertner and other Progressives would then argue that employers of these low-paid physicians, lawyers, and other professionals are “subsidized” by the employers of these employees’ high-paid spouses.) But of course we observe no such thing.

Third, if this trope were indeed correct, then the most direct way to protect taxpayers from having to subsidize employers would be to abolish the government welfare programs. When their welfare benefits disappear, low-wage workers will demand, and receive from their employers, higher pay to replace the lost benefits. But because Mr. Gertner and others who repeat this trope surely oppose abolition of the welfare programs that they assert are subsidies to employers, it’s unlikely that even they really believe this trope.

Sincerely,
Donald J. Boudreaux
Professor of Economics
and
Martha and Nelson Getchell Chair for the Study of Free Market Capitalism at the Mercatus Center
George Mason University
Fairfax, VA 22030