Over at RealClearMarkets, my colleague Wayne Crews and I argue that the law of demand holds. Hard to believe that’s actually controversial, but that’s Washington for you. Here’s our conclusion:
Eberly was put in an uncomfortable position when she came to Washington. Just as a lawyer’s job is to vigorously defend clients even if she knows they are guilty, Eberly’s job is to vigorously defend policies that are obviously harmful to the economy. Try as she might, she cannot argue against the law of demand.
Regulations make hiring costlier and thus make jobs scarcer. And regulatory uncertainty makes companies reluctant to hire employees they might not be able to afford down the road. Case closed.
In a recent NBC interview, President Obama blamed ATMs for taking away bank tellers’ jobs, and computerized airline check-in kiosks for eliminating aviation jobs. Communications Coordinator Lee Doren points out that innovation doesn’t affect the number of jobs so much as the types of jobs. Accomplishing more while using less labor is actually the key to prosperity. People looking for an explanation for today’s high unemployment need to look elsewhere.
My colleague Ryan Radia and I recently sent this letter to The New York Times:
Editor, New York Times:
Catherine Rampell’s September 7 article, “Once a Dynamo, the Tech Sector Is Slow to Hire,” mourns the recent decline in U.S. data processing jobs. She blames much of the decline on the automation of previously tedious tasks.
May we suggest one way to get those jobs back: No more automation. Ban the use of computers for data processing. Imagine how much information flows through today’s global economy in an average day. Computers handle most of the load. That costs millions of jobs.
The effects would reverberate far beyond the tech sector. The paper, pen, and pencil industries would also boom.
Companies are dead-set on doing more with less. True, that creates more jobs in the long run by freeing up resources — and employees — for new ventures. But if only they would consider doing less with more, they could create more data processing jobs.
Ryan Young and Ryan Radia Competitive Enterprise Institute Washington, D.C.
Sometimes, the fastest, most effective way to explain economics is to tell a story. One of the best-done examples is in Steven Landsburg’s book The Armchair Economist, where he tells David Friedman’s “Iowa Car Crop” story to get readers to think about trade (see pp. 197-99).
[T]here are two technologies for producing automobiles in America. One is to manufacture them in Detroit, and the other is to grow them in Iowa.
Okay… how does that work?
First you plant seeds, which are the raw material from which automobiles are constructed. You wait a few months until wheat appears. Then you harvest the wheat, load it onto ships, and sail the ships eastward into the Pacific Ocean. After a few months, the ships reappear with Toyotas on them.
Sounds almost magical. But it happens millions of times every day. The lesson is that trade is about specialization. A farmer doesn’t know how to build a car. But he can still have one by sticking to his specialty–growing wheat. He can trade his surplus to other people who do nothing but specialize in building cars.
This cuts both ways. Most factory workers don’t know a thing about farming. But by concentrating on building cars, they eat far better than if they grew their own wheat. The nature of trade is that everyone wins when they specialize. The only limit on specialization is the size of the market.
Restrictions on trade–tariffs, quotas, antidumping duties–shrink that market. And by shrinking the market, they limit specialization, which is the source of all prosperity. It’s good to grow cars in Iowa.
The lesson doesn’t apply to just wheat and cars. It applies to everything. Tom Palmer from the Atlas Economic Research Foundation makes that clear as day in this excellent video. If you want to learn the meaning of free trade in under three minutes, this is as good as it gets.
One of the problems with current immigration laws is that they raise the price of immigrating legally. Basic economics tells us that when something costs more, people consume less of it.
That’s why so many of America’s immigrants are turning to dangerous but cheap immigration black markets to enter the country. This is a problem with an obvious solution. In today’s American Spectator, Alex Nowrasteh and I make the case that lowering the cost of legal immigration through liberalization will reduce the amount of illegal immigration, and shrink cruel black markets.
Not at all, to be honest. For starters, the very notion of stimulus violates basic economics. Taking money out of the economy and then putting it back in has no net effect. But it gets worse. Much worse.
When that money is put back into the economy, it goes to the weirdest places — $3.4 million is going to Florida to build a tunnel under U.S. Highway 27, so turtles can cross safely. A fish hatchery in South Dakota is getting $20,000 for new light fixtures. $50,000 is being spent to resurface a tennis court in Bozeman, Montana.
And so on.
These boondoggles aren’t getting nearly enough press. To help fill the vacuum, the good folks at Citizens Against Government Waste have put up a new website, MyWastedTaxDollars.org. Click on over and check it out. The best feature is an interactive map that shows just how unwisely stimulus funds are being spent all over the country.
Stimulus is worse than a zero-sum game. It is actively harmful. It is government saying that it knows how to spend your money better than you do; stimulus is the ultimate act of hubris. Kudos to CAGW and MyWastedTaxDollars.org for providing hundreds of examples of why government hubris should be replaced with government humility.
As the House gets ready to pass the health care bill today, I’m reminded of one of the first lessons in economics I ever learned. Milton Friedman put it best:
There are four ways in which you can spend money. You can spend your own money on yourself. When you do that, why then you really watch out what you’re doing, and you try to get the most for your money. Then you can spend your own money on somebody else. For example, I buy a birthday present for someone. Well, then I’m not so careful about the content of the present, but I’m very careful about the cost. Then, I can spend somebody else’s money on myself. And if I spend somebody else’s money on myself, then I’m sure going to have a good lunch! Finally, I can spend somebody else’s money on somebody else. And if I spend somebody else’s money on somebody else, I’m not concerned about how much it is, and I’m not concerned about what I get. And that’s government. And that’s close to 40% of our national income.
The biggest problem with health care today is that patients only pay 12 percent of costs out of pocket. As far as each individual is concerned, it’s basically on sale for 88 percent off! No wonder we spend so much on health care.
Today’s bill consists almost entirely of spending other peoples’ money on other people. If it becomes law, that 12 percent figure will fall even further. This is no way to keep costs under control. However noble Congress’ intentions may be, its bill will not work as advertised. Human nature won’t allow it.
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