Economic Growth

Last night's State of the Union address, which even many among the Talking Left seemed to agree was a pointless execise, struck me as an exercise in misdirection.

The President started off talking about teachers spending extra time with students, autoworkers working hard, farmers, doctors, fathers and mothers and soldiers. The theme seemed to be "the real state of our union is in our hearts," and it was an attempt to divert attention away from real, empirical measurements of how well we're doing, which is pretty awful.

Consider:

On the subject of the minimum wage, people seem almost immune to objective, empirical arguments, but one has to state them anyway, if almost only for the record:

Wages are the price of labor. Higher skilled labor is worth a higher price. Lower skilled labor is worth a lower price.

When you set a legal price control on labor, which is what a minimum wage is, you make it illegal for low skill workers to sell their labor. It's as simple as that.

People generally seem to understand that prices reflect value, except when it comes to labor.

What if we made a law that said fast food hamburgers could cost no less than $20? People would be outraged, and would (correctly) argue that this made it impossible for low-income folks to afford fast food hamburgers.

Well, if you pass a law that says people who work in fast food places can make no less than $20, you make it impossible for low-skill workers to sell their labor to the fast food place. The owner of the business must respond to the price control, just like the consumer must respond to price controls.

The latest “wisdom” about the government shutdown is that the impasse is making the U.S. a laughing stock around the world. If there is any country laughing at the U.S., it’s either a hypocrite or it hasn’t looked at its own financial situation—or that of many other countries. 

The new unemployment numbers are out and the best we can say is, well, actually there isn’t much good we can say. The Bureau of Labor Statistics announced that the economy added 169,000 jobs last month, but that’s about 10,000 lower than may economists were predicting.

Unemployment fell from 7.4 percent to 7.3 percent, which looks god initially, but that’s because so many more Americans quit looking for work.

The Dallas Fed put out a very interesting paper (PDF) in July in which they try to quantify the damage done by the 2007-09 financial crisis. Don’t go looking to this paper to find anything about the “cause” or “roots” of the crisis, or how to get out of it, or whether the right policies were followed, etc. No, they’re just trying to quantify the costs to the economy, which is valid and interesting in itself.

They come up with some astonishingly large numbers. Without going into enormous detail here (you can read the paper yourself if you have an appetite for enormous detail), they find that the cost of the financial crisis is at least 40-90% of a full year’s (2007) economic output for the United States. I say “at least” because, after they have figured in a few other factors they believe are valid, they conclude that “what the U.S. gave up as a result of the crisis is likely greater than the value of one year’s output.”

That’s between $6 trillion and $14 trillion lost, or the equivalent of $50,000 to $120,000 for every U.S. household. Now it seems big.

I was talking with a lady, who is probably in her late 50s, when she told me she was going to start looking for a different job. See, she’s a teller working in the branch of one of the country’s largest banks, and the bank is making some cutbacks, turning its full-time tellers into part-timers (at some branches anyway).

I asked the next question, but I was pretty sure I already knew the answer: How many hours was the bank willing to let her work? Under 30, she said, which just so happens to be ObamaCare’s dividing line between those who must be covered with employer-provided health insurance and those who don’t.

While the House Judiciary Committee is certainly busy with a raft of issues these days, sooner or later they will continue to hold hearings about the copyright system in the U.S., considering how it works in an age of rapidly advancing technology, business models, an ever growing pool of content and new means to access that content.

Ever since passage of the Budget Control Act of 2011, most people have assumed that, eventually, some sort of deal would get done. Both sides have something to lose, the thinking went, so both sides will eventually compromise to spare the country from going over the fiscal cliff.

And everyone also assumed that, while the outcome of the election would tilt the balance of power, still both sides had something to lose, so a deal would get done.

And that makes sense, if you assume both sides have something to lose.

But what if, even before the election, one side thought it did NOT have much to lose? What if, in fact, one side thought it had almost nothing to lose and much to gain, and the outcome of the election simply confirmed this calculation? What then?

Good stuff from Alan Reynolds at Cato:

In the real world of politics, however, Congress and the White House use borrowed money to placate constituencies with the most political clout. Federal spending on investment projects has essentially nothing to do with the huge 2009-2012 budget deficits (only 29 percent of which can be blamed on the legacy of recession, according to the CBO).

According to an opinion piece in today's Politico, Mitt Romney has revealed that he is a Keynesian. Is Romney a Keynesian? Is that a problem? And is anyone surprised?

It's been announced that the next round of Trans-Pacific Partnership negotiations will be held in San Diego July 2-10, 2012.