Thursday, July 30, 2009

Minimum Wage: 50 Years of Fail.

I've been engaged in a number of great discussions lately on the subject of the recent minimum wage hike - I've explained why minimum wage necessarily causes unemployment or reductions in other aspects of pay, and is ultimately a very harmful thing to low-skilled workers in our society, but I recently discovered this fantastic resource, entitled "50 Years of Research on Minimum Wage" from the House of Representative's own website (ohhh the irony).

The theory & basic math goes like this:

If you have $100 an hour to pay employees, and the going market rate is $5.00 an hour, you can hire 20 employees. If someone threatens to fine you and ultimately (upon refusal to pay said fine, for instance) throw you in jail if you do not pay all your employees at least $10.00, you can now only - by law - afford to hire 10 people. This means that your productive capabilities are lowered, and thus your business' success suffers, and it puts half your employees out of work. In addition, it means that the people you're likely to keep are going to be the highest skilled & most experienced of the bunch, pushing out (or not hiring in the future) anyone who isn't worth at least $10.00 an hour in terms of their skills and productive capability.

Translation: The poorest, youngest and least educated among us are screwed out of acquiring jobs where they are able to develop the skills they will need to become more successful in their own lives.

Even worse, it also rewards and ensconces racism by enabling racist employers an easy opportunity to fire - or not hire - minorities they dislike and to favor more inherently privileged workers. Among many terrible consequences of this is that when people (especially teens) don't have a job or something productive to do, they are often more likely - depending on their circumstances - to turn to more destructive (and sometimes more profitable) activities like drug-dealing & joining gangs, etc... At least, this is the argument put forward by many economists in the list below.

Yet, "we" (by which I mean the economically illiterate congressperson & their equally uninformed constituencies) persist in pretending that these sorts of policies actually work, solely because we deem the programs' intentions to be laudable.

Unfortunately, many of the negative effects are "unseen", in that they happen to a dispersed group of people unaware of their losses - which makes it hard for some people to recognize them. For example, it's easy to see an individual's loss when they get fired, but when they don't get hired in the first place? Not so easy.

As a result, I get delusional reactions to my anti-minimum wage explanations, most notably; "Well, that's great in theory but there's no proof that minimum wage causes unemployment!"

Of course, it's relatively easy to claim that there's no proof when you are ignorant of the research that has been done... Although, one might think it would be enough to simply think through the myriad jobs lost to Mexico, China, Malaysia, Thailand, Viet Nam, Philippines, Taiwan & Korea, etc. and realize that that's exactly where many of the jobs that Americans have been priced out of doing by law have gone.

But in case that argument isn't enough, here's a fine reading list as generated by our own House of Representatives (emphases added):
Adams, F. Gerard. 1987. Increasing the Minimum Wage: The Macroeconomic Impacts. Briefing Paper, Economic Policy Institute (July).
Finds that an increase in the minimum wage from $3.35 to $4.65 over three years would increase the unemployment rate by less than 0.1% and the inflation rate by 0.2%.
Adie, Douglas K. 1973. Teen-Age Unemployment and Real Federal Minimum Wages. Journal of Political Economy, vol. 81 (March/April): 435-441.
Finds that the minimum wage is responsible for a considerable amount of teenage unemployment.
Al-Salam, Nabeel; Quester, Aline; and Welch, Finis. 1981. Some Determinants of the Level and Racial Composition of Teenage Employment. In Rottenberg (1981a): 124-154.
Notes that in 1954, black teenage males were more likely to be employed than white teenage males. Since that time, the proportion of black teenage males employed has fallen sharply, while employment for white teenage males has risen. Expansion of coverage of the minimum wage appears to be a major factor in this trend. Further notes that more than half of all teenagers would earn more in the absence of a minimum wage.
Bauer, P.T. 1959. Regulated Wages in Under-developed Countries. In The Public Stake in Union Power, ed. Philip D. Bradley. Charlottesville, VA: University of Virginia Press, 324-349.
Argues that the negative effects of minimum wage laws in LDCs is even greater than in industrialized countries, because there is greater diversity of supply and demand for labor in LDCs. Also points out that in South Africa minimum wages helped whites at the expense of blacks.
Behrman, Jere R.; Sickles, Robin C.; and Taubman, Paul. 1983. The Impact of Minimum Wages on the Distributions of Earnings for Major Race-Sex Groups: A Dynamic Analysis. American Economic Review, vol. 73 (September): 766-778.
Finds that the minimum wage has helped white males and females while hurting black males and females.
Bell, Carolyn Shaw. 1981. Minimum Wages and Personal Income. In Rottenberg (1981a): 429-458.
Finds that increases in the minimum wage would benefit few families with incomes below the poverty level. Much of the benefit would accrue to upper income families with secondary earners, such as wives and children.
Beranek, William. 1982. The Illegal Alien Work Force, Demand for Unskilled Labor, and the Minimum Wage. Journal of Labor Research, vol. 3 (Winter): 89-99.
Finds that the minimum wage increases the employment demand for illegal aliens, who are less likely than legal residents to report violations of the labor laws.
Betsey, Charles L., and Dunson, Bruce H. 1981. Federal Minimum Wage Laws and the Employment of Minority Youth. American Economic Review, vol. 71 (May): 379-384.
Argues that employment losses from higher minimum wages have been overstated and that much of the higher unemployment among minority youth has been due to cyclical factors.
Bonilla, Carlos E. 1992. Higher Wages, Greater Poverty. Washington: Employment Policies Institute.
Finds that the 1991 increase in the federal minimum wage actually reduced the income of some single parents, after welfare and taxes are taken into account.
Brandon, Peter D. 1995. Jobs Taken by Mothers Moving from Welfare to Work and the Effects of Minimum Wages on this Transition. Washington: Employment Policies Institute Foundation.
Finds a decrease in work by women on welfare in states raising their minimum wages and an increase in time on welfare in such states.
Brown, Charles. 1988. Minimum Wage Laws: Are They Overrated? Journal of Economic Perspectives, vol. 2 (Summer): 133-145.
Finds that they employment impact of the minimum wage and its impact on reducing poverty are both less than generally believed.
Brown, Charles; Gilroy, Curtis; and Kohen, Andrew. 1981a. Effects of the Minimum Wage on Youth Employment and Unemployment. In Minimum Wage Study Commission (1981), vol. 5, pp. 1-26.
Finds that a 10% increase in the minimum wage will reduce teenage employment by 1% to 3%.
Brown, Charles; Gilroy, Curtis; and Kohen, Andrew. 1981b. Time-Series Evidence of the Effect of the Minimum Wage on Teenage Employment and Unemployment. In Minimum Wage Study Commission (1981), vol. 5, pp. 103-127.
Finds that a 10% increase in the minimum wage will reduce teenage employment by 1%.
Brown, Charles; Gilroy, Curtis; and Kohen, Andrew. 1982. The Effect of the Minimum Wage on
Employment and Unemployment. Journal of Economic Literature, vol. 20 (June): 487-528.
Summarizes a large volume of research on the minimum wage.
Brozen, Yale. 1962. Minimum Wage Rates and Household Workers. Journal of Law and Economics, vol. 5 (October): 103-109.
Found that increases in the minimum wage drove low-wage workers into uncovered occupations, such as household work. Predicts that broadening of coverage to such occupations will increase structural unemployment.
Brozen, Yale. 1966. Wage Rates, Minimum Wage Laws, and Unemploy-ment.New Individualist Re- view, vol. 4 (Spring): 24-33.
Points out a contradiction between the Johnson Administration's desire to hold wage increases to the rate of productivity growth, in order to reduce inflationary pressures, and its support for a higher minimum wage.
Brozen, Yale. 1969. The Effect of Statutory Minimum Wage Increases on Teen-age Employment. Journal of Law and Economics, vol. 12 (April): 109-122.
Finds that increases in the minimum wage only speed up wage increases that would have occurred over time. However, in the interval between an increase and the time when productivity catches up to it results in higher unemployment and business failures. In the case of teenagers, many who are barred from jobs suffer long-term effects from the failure to gain job skills, thus injuring them permanently.
Card, David. 1992a. Using Regional Variation in Wages to Measure the Effects of the Federal Minimum Wage. Industrial and Labor Relations Review, vol. 46 (October): 22-37.

Finds no evidence that the April, 1990 increase in the minimum wage reduced teenage employment, but does find evidence that it led to higher wages.
Card, David. 1992b. Do Minimum Wages Reduce Employment? A Case Study of California, 1987-89. Industrial and Labor Relations Review, vol. 46 (October): 38-54.

Finds no evidence that an increase in the California state minimum wage in July, 1988 led to any loss in teenage employment, but does find evidence of higher wages.
Card, David, and Krueger, Alan B. 1994. Minimum Wages and Employ-ment: A Case Study of the Fast-Food Industry in New Jersey and Pennsylvania.American Economic Review, vol. 84 (September): 772-793.
Finds no evidence of reduced employment from an increase in the New Jersey state minimum wage in April, 1992.
Colberg, Marshall R. 1960. Minimum Wage Effects on Florida's Economic Development. Journal of Law and Economics, vol. 3 (October): 106-117.
Finds that after an increase in the minimum wage unemployment increased most in the areas where wages were lowest and least in areas where wages were highest beforehand.
Colberg, Marshall. 1981. Minimum Wages and the Distribution of Economic Activity. In Rottenberg (1981a): 247-263.
Examines votes on the minimum wage and finds heavy support for it in high wage states of the North and opposition from low wage states in the South. This suggests that the North was attempting to reduce the South's competitive advantage in wages.
Corbo, Vittorio. 1981. The Impact of Minimum Wages on Industrial Employment in Chile. In Rottenberg (1981a): 340-356.
Finds substantial job losses from the minimum wage in Chile.
Cotterill, Philip. 1981. Differential Legal Minimum Wages. In Rottenberg (1981a): 296-316.
Favors differential minimum wages to reduce the impact of the minimum wage.
Cotterman, Robert F. 1981. The Effects of Federal Minimum Wages on the Industrial Distribution of Teenage Employment. In Rottenberg (1981a): 42-60.
Finds that minimum wages have altered the distribution of teenage employment. Teenagers are less likely to be employed in low wage industries, such as retailing, and increase employment in high wage industries, such as manufacturing.
Cox, James C., and Oaxaca, Ronald L. 1981. The Determinants of Minimum Wage Levels and Coverage in State Minimum Wage Laws. In Rottenberg (1981a): 403-428.
Finds that union support for the minimum wage is significant politically. [Logicology Note: Unions support minimum wage precisely because it reduces competition for their services and prohibits competitive labor from developing.]
Cox, James C., and Oaxaca, Ronald L. 1982. The Political Economy of Minimum Wage Legislation. Economic Inquiry, vol. 20 (October): 533-555.
Explains why unions support minimum wages.
Cox, James C., and Oaxaca, Ronald L. 1986. Minimum Wage Effects With Output Stabilization. Economic Inquiry, vol. 24 (July): 443-453.
Finds that the minimum wage causes unskilled wages to be 15.7% higher than they otherwise would be, and that this causes employment to be 11.2% lower than it otherwise would be.
Cunningham, James. 1981. The Impact of Minimum Wages on Youth Employment, Hours of Work, and School Attendance: Cross-sectional Evidence from the 1960 and 1970 Censuses. In Rottenberg (1981a): 88-123.
Finds that minimum wages discourage part-time work and lowers school attendance.
Currie, Janet, and Fallick, Bruce. 1993. A Note on the New Minimum Wage Research. National Bureau of Economic Research Working Paper No. 4348 (April).
Finds that employed individuals affected by the increases in the minimum wage in 1979 and 1980 were 3% to 4% less likely to be employed a year later. Since the methodology employed is similar to that in Card (1992a and 1992b), it casts doubt on any generalization of his conclusions.
Datcher, Linda P., and Loury, Glenn C. 1981. The Effect of Minimum Wage Legislation on the Distribution of Family Earnings Among Blacks and Whites. In Minimum Wage Study Commission (1981), vol. 7, pp. 125-146.
Finds that an increase in the minimum wage increases white family incomes more than black family incomes. Also, middle- and high-income families benefit more than low-income families.
Douty, H.M. 1960. Some Effects of the $1.00 Minimum Wage in the United States. Economica, vol. 27 (May): 137-147.
Finds that the increase in the minimum wage from 75 cents to $1.00 in 1956 did lead to an increase in pay for many workers, but at the cost of jobs. Long-term employment losses by industry ranged from 3.2% to 15%.
Ehrenberg, Ronald G., and Schumann, Paul L. 1981. The Overtime Pay Provisions of the Fair Labor Standards Act. In Rottenberg (1981a): 264-295.
Opposes restrictions on mandatory overtime.
Employment Policies Institute. 1994. The Low-Wage Workforce. Washington: Employment Policies Institute.
Presents data on characteristics of workers earning the minimum wage.
Feldstein, Martin. 1973. The Economics of the New Unemployment. The Public Interest (Fall): 14-15.
Argues that the minimum wage prevents many young people from accepting jobs that would provide them with on-the-job training, thus contributing to long-term unemployment.
Fleisher, Belton M. 1981. Minimum Wage Regulation in Retail Trade. Washington: American Enterprise Institute.
Extension of the minimum wage to retail trade lowered employment in that industry by as much as 500,000, with the main impact on teenagers. Also finds that higher minimum wages led to a scale-back of fringe benefits and training.
Forrest, David. 1982. Minimum Wages and Youth Unemployment: Will Britain Learn from Canada? Journal of Economic Affairs, vol. 2 (July): 247-250.
Estimates that 40% of the increase in teenage unemployment in Canada since the 1950s is due to higher minimum wages.
Freeman, Alida Castillo, and Freeman, Richard B. 1991. Minimum Wages in Puerto Rico: Textbook Case of a Wage Floor? National Bureau of Economic Research Working Paper No. 3759 (June).
Finds that the minimum wage has had a massive impact on the labor market in Puerto Rico.
Gallasch, H.F., Jr. 1975. Minimum Wages and the Farm Labor Market. Southern Economic Journal, vol. 41 (January): 480-491.
Finds that the 1967 extension of the minimum wage to the farm labor market, which had previously been uncovered, led to an increase in wages and a reduction in employment.
Gardner, Bruce. 1981. What Have Minimum Wages Done in Agriculture? In Rottenberg (1981a): 210-232.
Finds that extension of the minimum wage to farm workers has increased wages but reduced employment.
Gordon, Kenneth. 1981. The Impact of Minimum Wages on Private Household Workers. In Rottenberg (1981a): 191-209.
Finds that the minimum wage has led to a dramatic reduction in household workers. Also notes that the policy of enforcement of labor laws by complaint converts the minimum wage from an instrument of public policy to a tool of private disputes.
Gramlich, Edward M. 1976. Impact of Minimum Wages on Other Wages, Employment, and Family Incomes. Brookings Papers on Economic Activity(No. 2): 409-461.
Finds that raising the minimum wage above 40 to 50 percent of median wages leads to increased compliance costs, higher unemployment, workers forced to leave full-time work for part-time work, more benefits for high-income families, and inflationary effects on prices.
Gregory, Peter. 1981. Legal Minimum Wages as an Instrument of Social Policy in Less Developed Countries, with Special Reference to Costa Rica. In Rottenberg (1981a): 377-402.
Finds that the minimum wage has been ineffective in reducing income inequality. [Logicology Note: Considering that income inequality has risen sharply in the last 30 years... Duh.]
Grossman, Jean B. 1983. The Impact of the Minimum Wage on Other Wages.Journal of Human Resources, vol. 18 (Summer): 359-378.
Finds that an increase in the minimum wage increases wages of those above the minimum wage for two reasons. First, workers above the minimum will want to restore their relative wage position, and second there will be increased demand for workers above the minimum to do the work previously done by those below the minimum.
Grossman, Jonathan. 1978. Fair Labor Standards Act of 1938: Maximum Struggle for a Minimum Wage. Monthly Labor Review, vol. 101 (June): 22-30.
Reviews the legislative history of passage of the first federal minimum wage law. Notes the limited coverage of the initial legislation.
Hall, Robert E. 1982. The Minimum Wage and Job Turnover in Markets for Young Workers. In The Youth Labor Market Problem: Its Nature, Causes, and Consequences, ed. Richard B. Freeman and David A. Wise, pp. 475-497. Chicago: University of Chicago Press.
Finds that the higher unemployment among youth resulting from the minimum wage is primarily due to higher job turnover.
Hammermesh, Daniel S. 1981. Employment Demand, the Minimum Wage and Labor Costs. In Minimum Wage Study Commission (1981), vol. 5, pp. 27-84.
Finds that a 10% increase in the minimum wage will reduce teenage employment by 1.2% overall, with smaller declines in services and retail trade and a higher impact in manufacturing.
Hammermesh, Daniel S. 1982. Minimum Wages and the Demand for Labor.Economic Inquiry, vol. 20 (July): 365-380.
Finds that a minimum wage reduces teenage employment.
Hashimoto, Masanori. 1981. Minimum Wages and On-the-Job Training. Washington: American Enterprise Institute.
Finds that minimum wage laws lead to a curtailment of training by employers.
Hashimoto, Masanori. 1982. Minimum Wage Effects on Training on the Job.American Economic Review, vol. 72 (December): 1070-1087.
Finds that minimum wages reduce training, first because workers lose job opportunities, and hence on the job training, and second because employers will no longer be able to afford to give such training.
Hashimoto, Masanori. 1987. The Minimum Wage Law and Youth Crimes: Time-Series Evidence. Journal of Law and Economics, vol. 30 (October): 443-464.
Suggests that increases in the minimum wage may be responsible for increases in teenage crime rates.
Haugen, Steven E., and Mellor, Earl F. 1990. Estimating the Number of Minimum Wage Workers. Monthly Labor Review, vol. 113 (January): 70-74.
Estimates that two-fifths of workers reporting wage rates at or below the minimum wage in 1988 had supplements raising their wage rates above the minimum. However, some 1.5 million salaried workers may also make the minimum wage or less on an hourly rate.
Holcombe, Randall G., and Metcalf, John G. 1977. The Appeal of Minimum Wage Laws: A Dynamic Analysis. Public Choice, vol. 29 (Spring): 139-141.
Explains the popularity of minimum wage laws even among those who lose their jobs as a result as stemming from the high turnover in the low-wage market. Although a worker may initially lose his job because of an increase in the minimum wage, he will expect to get other jobs in the future that will pay more.
Iden, George. 1980. The Labor Force Experience of Black Youth: A Review.Monthly Labor Review, vol. 103 (August): 10-16.
Concedes that the minimum wage has had a significant negative effect on teenage employment, especially for blacks.
Johnson, William R., and Browning, Edgar K. 1981. Minimum Wages and the Distribution of Income. In Minimum Wage Study Commission (1981), vol. 7, pp. 31-58.
Finds that much of the benefits of a higher minimum wage accrue to high-income families and that many low-income families benefit at the expense of other low-income families.
Johnson, William R., and Browning, Edgar K. 1983. The Distributional and Efficiency Effects of Increasing the Minimum Wage: A Simulation. American Economic Review, vol. 73 (March): 204-211.
Finds that a 22% increase in the minimum wage in 1976 would have increased the incomes of the lowest 10% of households by just $200 million.
Katz, Lawrence F., and Krueger, Alan B. 1992. The Effect of the Minimum Wage on the Fast-Food Industry. Industrial and Labor Relations Review, vol. 46 (October): 6-21.
Finds evidence that an increase in the minimum wage led to an increase in employment in Texas.
Kaun, David E. 1965. Minimum Wages, Factor Substitution and the Marginal Producer. Quarterly Journal of Economics, vol. 79 (August): 478-486.
The minimum wage hurts small businesses.
Keech, William R. 1977. More on the Vote Winning and Vote Losing Qualities of Minimum Wage Laws. Public Choice, vol. 29 (Spring): 133-137.
Suggests that support for the minimum wage even among those adversely affected may result from those benefiting having a clearer perception of the benefits than those who are harmed have of the negative effects.
Kniesner, Thomas J. 1981. The Low-Wage Workers: Who Are They? In Rottenberg (1981a): 459-481.
Finds that 60% of low-wage workers are women and less than 40% are teenagers. Also finds that low wages are not strongly associated with poverty. Less than 25% of low wage workers are heads of households, and only 30% live in families with incomes below the poverty level.
Kohen, Andrew I., and Gilroy, Curtis L. 1981. The Minimum Wage, Income Distribution, and Poverty. In Minimum Wage Study Commission (1981), vol. 7, pp. 1-30.
Since many low-wage workers live in high-income families, increasing the minimum wage is an ineffective way of increasing the incomes of poor families.
Kosters, Marvin, and Welch, Finis. 1972. The Effects of Minimum Wages on the Distribution of Changes in Aggregate Employment. American Economic Review, vol. 62 (June): 323-332.
Finds that increases in the minimum wage have a significant effect on employment patterns, especially for nonwhite teenagers. As a consequence, teenagers are less able to find jobs during periods of normal employment growth and are more likely to lose their jobs during cyclical downturns.
Krumm, Ronald J. 1981. The Impact of the Minimum Wage on Regional Labor Markets. Washington: American Enterprise Institute.
Finds that lower-skilled workers tend to be disemployed when minimum wages are applied uniformly, leading to higher wages for higher-skilled workers. Also, because the cost of living varies from region to region, the real minimum wage will also vary.
Lang, Kevin. 1995. Minimum Wage Laws and the Distribution of Employment. Washington: Employment Policies Institute Foundation.
Finds that increases in the minimum wage leads fast food establishments to replace adult workers with younger workers, and to replace full-time workers with part-time workers.
Leffler, Keith B. 1978. Minimum Wages, Welfare, and Wealth Trans-fers to the Poor. Journal of Law and Economics, vol. 21 (October): 345-358.
Finds that increases in the minimum wage lead to increases in welfare rolls. Argues that advocates for the poor may favor higher minimum wages in order to increase the number of people on welfare, because welfare benefits may exceed the income from work.
Leighton, Linda, and Mincer, Jacob. 1981. The Effects of Minimum Wages on Human Capital Formation. In Rottenberg (1981a): 155-173.
Finds that minimum wages discourage on-the-job training.
Levitan, Sar, and Belous, Richard S. 1979. The Minimum Wage Today: How Well Does It Work? Monthly Labor Review, vol. 102 (July): 17-21.
Argues that the benefits of the minimum wage outweigh its costs.
Linneman, Peter. 1982. The Economic Impacts of Minimum Wage Laws: A New Look at an Old Question. Journal of Political Economy, vol. 90 (June): 443-469.
Finds that the disemployment effects of the minimum wage fall mainly on blacks, females, restricted individuals, residents of small cities, those with low education, the old, and non-union members. Beneficiaries of the minimum wage mainly are males and union members.
Mattila, J. Peter. 1981. The Impact of Minimum Wages on Teenage Schooling and on the Part-Time/Full-Time Employment of Youths. In Rottenberg (1981a): 61-87.
Finds that the disemployment effects of the minimum wage have encouraged youths to stay in school. Also, youths have shifted out of full-time work and into part-time work, in order to accommodate schooling.
McCulloch, J. Huston. 1981. Macroeconomic Implications of the Minimum Wage. In Rottenberg (1981a): 317-326.
Finds negligible effects from the minimum wage on inflation. However, it may reduce the size of the capital stock by reducing profitability in covered industries, thereby leading to lower wages in the long run.
McKee, Michael, and West, Edwin G. 1984. Minimum Wage Effects on Part-Time Employment. Economic Inquiry, vol. 22 (July): 421-428.
Finds that the minimum wage discourages part-time employment in favor of full-time jobs.
McKenzie, Richard B. 1980. The Labor Market Effects of Minimum Wage Laws: A New Perspective. Journal of Labor Research, vol. 1 (Fall): 255-264.
Argues that increases in the minimum wage, which apply only to money wages, will lead to a reduction in non-money wages, such as fringe benefits. Thus employers can respond to a higher minimum wage by lowering benefits by the same amount.
Mellor, Earl F. 1987. Workers at the Minimum Wage or Less: Who They Are and the Jobs They Hold. Monthly Labor Review, vol. 110 (July): 34-38.
Finds that those earning at the minimum wage or less consist largely of young persons and women. The majority worked part-time in services or sales. Since many of these people probably also received commissions or tips, the number of workers earning the minimum wage or less may be overstated.
Mellor, Earl F., and Haugen, Steven E. 1986. Hourly Paid Workers: Who They Are and What They Earn. Monthly Labor Review, vol. 109 (February): 20-26.
Finds that 60% of those earning the minimum wage or less are under age 25 and one-third were teenagers.
Meyer, Robert H., and Wise, David A. 1981. Discontinuous Distributions and Missing Persons: The Minimum Wage and Unemployed Youth. In Minimum Wage Study Commission (1981), vol. 5, pp. 175-201.
Finds that abolition of the minimum wage would increase employment by out-of-school youth by 6%.
Meyer, Robert H., and Wise, David A. 1983a. The Effects of the Minimum Wage on the Employment and Earnings of Youth. Journal of Labor Economics, vol. 1 (January): 66-100.
Estimates that abolition of the minimum wage would have led to significantly higher employment among youth, especially black youth. Finds no evidence of higher earnings from the minimum wage.
Meyer, Robert H., and Wise, David A. 1983b. Discontinuous Distributions and Missing Persons: The Minimum Wage and Unemployed Youth. Econometrica, vol. 51 (November): 1677-1698.
Finds that if the minimum wage did not exist in 1978, employment among out-of-school young men would have been 7% higher. Also, the average earnings of youth would have been higher.
Mincer, Jacob. 1976. Unemployment Effects of Minimum Wages. Journal of Political Economy, vol. 84 (August): S87-S104.
Finds that the negative effects of a minimum wage increase are greatest for nonwhite teenagers. Moreover, the disemployment effects on the size of the labor force are greater than the effects on the unemployment rate.
Mincy, Ronald B. 1990. Raising the Minimum Wage: Effects on Family Poverty.Monthly Labor Review, vol. 113 (July): 18-25.
Finds a significant impact on reducing poverty from an increase in the minimum wage. This is because the disemployment impact falls mainly on teenagers, whose contribution to family income is small.
Minimum Wage Study Commission. 1981. Report, 7 vols. Washington: U.S. Government Printing Office.
Concludes that a 10% increase in the minimum wage will reduce teenage employment by 1%-3%.
Moore, Thomas G. 1971. The Effect of Minimum Wages on Teenage Unemployment Rates. Journal of Political Economy, vol. 79 (July/August): 897-902.
Finds that the minimum wage increases unemployment primarily for nonwhite teenagers.
Neumark, David, and Wascher, William. 1992. Employment Effects of Minimum and Subminimum Wages: Panel Data on State Minimum Wage Laws. Industrial and Labor Relations Review, vol. 46 (October): 55-81.
Finds that a 10% increase in the minimum wage reduces teenage employment by 1% to 2%, and a decline of 1.5% to 2% among young adults.
Parsons, Donald O. 1980. Poverty and the Minimum Wage. Washington: American Enterprise Institute.
Finds that the minimum wage mainly reallocates income among low-wage workers, benefiting adult females and hurting teenagers of both sexes.
Peterson, John M. 1957. Employment Effects of Minimum Wages, 1938-50.Journal of Political Economy, vol. 65 (October): 412-430.
One of the first empirical studies to show that minimum wages reduce employment.
Peterson, John M. 1981. Minimum Wages: Measures and Industry Effects. Washington: American Enterprise Institute.
Calculates the impact of the minimum wage on different industries. The negative employment effects primarily impact low-wage industries such as retailing.
Peterson, John M., and Stewart, Charles T., Jr. 1969. Employment Effects of Minimum Wage Rates. Washington: American Enterprise Institute.
Summarizes a large number of studies finding negative employment effects from minimum wages.
Phillips, Llad. 1981. Some Aspects of the Social Pathological Behavior Effects of Unemployment among Young People. In Rottenberg (1981a): 174-190.
Finds that primary impact of minimum wage is on young males, especially black males. This has encouraged continued school enrollment and entry into the armed forces. However, it has also encouraged "illegitimate" alternatives to employment, such as crime.
Ragan, James F., Jr. 1977. Minimum Wages and the Youth Labor Market.Review of Economics and Statistics, vol. 59 (May): 129-136.
Confirms that higher minimum wage rates reduce youth employment and increases youth unemployment rates, especially for nonwhite males.
Ragan, James F., Jr. 1981. The Effect of a Legal Minimum Wage on the Pay and Employment of Teenage Students and Nonstudents. In Rottenberg (1981a): 11-41.
Because the minimum wage reduces employment for teenagers, government funds spent on job training for teenagers must be counted as part of the cost of the minimum wage.
Rosa, Jean-Jacques. 1981. The Effect of Minimum Wage Regulation in France. In Rottenberg (1981a): 357-376.
Finds that the minimum wage reduces employment of youth in France, especially males.
Rottenberg, Simon. 1981a. The Economics of Legal Minimum Wages. Washington: American Enterprise Institute.
Collection of papers.
Rottenberg, Simon. 1981b. Minimum Wages in Puerto Rico. In Rottenberg (1981a): 327-339.
Finds that the minimum wage has caused massive disemployment in Puerto Rico and lowered the overall standard of living.
Smith, Ralph E., and Vavrichek, Bruce. 1987. The Minimum Wage: Its Relation to Incomes and Poverty. Monthly Labor Review, vol. 110 (June): 24-30.
Finds that 70% of workers earning the minimum wage in 1985 lived in families in which at least one other member held a job. Also, teenagers held almost one-third of all jobs paying the minimum wage.
Smith, Ralph E., and Vavrichek, Bruce. 1992. The Mobility of Minimum Wage Workers. Industrial and Labor Relations Review, vol. 46 (October): 82-88.
Examines a panel of workers earning the minimum wage in the mid-1980s and finds that over 60% were earning more than the minimum wage a year later, with gains averaging 20%.
Sowell, Thomas. 1977. Minimum Wage Escalation. Stanford, CA: Hoover Institution Press.
Argues that indexing the minimum wage would magnify its problems.
Steindl, Frank G. 1973. The Appeal of Minimum Wage Laws and the Invisible Hand in Government. Public Choice, vol. 14 (Spring): 133-136.
Argues that political support for the minimum wage results from the fact that those who benefit from a modest increase will outnumber those who lose.
Stigler, George J. 1946. The Economics of Minimum Wage Legislation.American Economic Review, vol. 36 (June): 358-365.
Argues that a minimum wage will reduce output and decrease the earnings of the poor.
Tauchen, George E. 1981. Some Evidence on Cross-Sector Effects of the Minimum Wage. Journal of Political Economy, vol. 89 (June): 529-547.
Finds that increases in the minimum wage tend to lower wages for those in uncovered sectors, because there is increased demand for uncovered jobs from those no longer employable at the minimum wage.
Taylor, Lowell J. 1993. The Employment Effect in Retail Trade of a Minimum Wage: Evidence from California. Washington: Employment Policies Institute.
Criticizes Card (1992b).
Trapani, John M., and Moroney, J.R. 1981. The Impact of Federal Minimum Wage Laws on Employment of Seasonal Cotton farm Workers. In Rottenberg (1981a): 233-246.
Finds that extension of the minimum wage to seasonal cotton workers in 1966 led to a substitution of mechanical processes for labor.
Vandenbrink, Donna C. 1987. The Minimum Wage: No Minor Matter for Teens.Economic Perspectives, Federal Reserve Bank of Chicago, vol. 11 (March/April): 19-28.
Finds large reductions in teenage employment from an increase in the minimum wage.
Van Giezen, Robert W. 1994. Occupational Wages in the Fast-Food Industry.Monthly Labor Review, vol. 117 (August): 24-30.
Shows that wages in the fast-food industry are closely tied to the minimum wage.
Welch, Finis. 1974. Minimum Wage Legislation in the United States. Economic Inquiry, vol. 12 (September): 285-318.
Finds that the minimum wage has reduced employment, especially among teenagers; it has made teenagers more vulnerable to the business cycle; and has forced teenagers out of covered occupations into those not covered by the minimum wage.
Welch, Finis. 1978. Minimum Wages: Issues and Evidence. Washington: American Enterprise Institute.
Finds that those primarily affected by the minimum wage are the aged, teenagers, and part-time workers.
Welch, Finis, and Cunningham, James. 1978. Effects of Minimum Wages on the Level and Age Composition of Youth Employment. Review of Economics and Statistics, vol. 60 (February): 140-145.
Finds that in 1970 the minimum wage reduced employment of 14-15 year olds by 46%, by 27% for those 16-17, and by 15% for those 18-19.
Wessels, Walter J. 1980. Minimum Wages, Fringe Benefits, and Working Conditions. Washington: American Enterprise Institute.
Finds that increases in the minimum wage lead to a reduction in fringe benefits and a deterioration of working conditions.
West, E.G. 1980. The Unsinkable Minimum Wage. Policy Review (Winter): 83-95.
Argues that economists should do a better job of explaining the negative effects of the minimum wage.
Williams, Walter. 1977a. Government Sanctioned Restraints that Reduce Economic Opportunities for Minorities. Policy Review (Fall): 7-30.
Argues that minimum wage laws have had a disproportionately negative effect on black teenagers.
Williams, Walter. 1977b. Youth and Minority Unemployment. Study prepared for the Joint Economic Committee, U.S. Congress. Joint Committee Print, 95th Congress, 1st session. Washington: U.S. Government Printing Office.
Points out that in 1947, prior to expansion of the minimumwage, black teenage unemployment was actually lower than white teenage unemployment, and that teenage unemployment generally was sharply lower than it is today.
So... Aside from effectively just one rather well criticized, unrepeated and poorly constructed government-favored study (Card/Krueger), we find that nearly every bit of empirical data over the last 50 years shows that minimum wage laws clearly increase unemployment - not just in the US, but all over the world (Chile, Puerto Rico, France & Canada cited above as well).  What's worse, the picture above shows even more clearly that it's exactly those minorities and chronically poor who the laws are designed to help which it hurts the most...

While it may be "counter-intuitive" to say that mandating higher wages hurts the poor, it's absolutely not counter-intuitive to say that 100/5 = 20 and 100/10 = 10.

The problem is that proponents of such economically illiterate legislation only focus their attention on the "seen" results and watch a select few prosper at the detriment of hundreds or thousands of others.

Next time you complain that all the jobs are going overseas, or that the kid at the Home Depot doesn't know where power drills are, and the next time you see a hoodlum running around and wonder "Why doesn't that kid go get a job?"... Just remember what the consequences of Minimum Wage really are.

Thursday, July 23, 2009

FB Links for the Week!

Take the red pill, Mr. President | Washington Examiner
By: David Freddoso Commentary
Staff Writer

July 23rd, 2009 6:56 AM

"Why oh why didn't I take the blue pill?"... Oh right, cause fantasy land isn't real.

"If there's a blue pill and a red pill, and the blue pill is half the price of the red pill and works just as well, why not pay half price for the thing that's going to make you well?" -- President Obama

In last night's press conference, President Obama seemed to be reliving that famous scene from The Matrix. The main character is offered a choice between a red pill that makes him see reality for what it is, and a blue pill that allows him to continue living in a pleasant world of illusions...
Posted: July 23rd, 2009 .

Davis-Bacon Act | Wikipedia

Oddly enough, this law is still active and on the books. Good news for racist union members everywhere.

It has been argued by critics that this law is a Jim Crow law. It was passed -- goes the charge -- to prevent African Americans from bidding on government contracts. [1], [2], [3], [4] The Depression-era act was introduced (so argue latter-day critics) after whites complained that African American workers had been hired to build a Veterans' Bureau hospital in Long Island. [5]

Congressional representative John Cochran of Missouri said that he voted for the Davis-Bacon Act because he had "received numerous complaints in recent months about Southern contractors' employing low-paid colored mechanics getting work and bringing the employees from the South." [6]

Congressional representative Clayton Allgood of Alabama said that he voted for Davis-Bacon because "Reference has been made to a contractor from Alabama who went to New York with bootleg labor. This is a fact. That contractor has cheap colored labor that he transports, and he puts them in cabins, and it is labor of that sort that is in competition with white labor throughout the country." [7].

Modern proponents of the law, however, argue that while elements of racism no doubt were part of the parlance of passing the bill, the motivating principle was clearly about a locality's ability to protect itself economically from "a race to the bottom" in wage rates. Peter Philips and Dale Belman reviewed the legislative history of prevailing wage regulations that culminated in the Davis-Bacon Act and found that the a number of the laws were in fact intended to keep out laborers of Northern European ancesty as well as out-of-area workers from the upper Great Plains [8]. In a 1973 article in Harper's, the great Civil Rights Activist Bayard Rustin forcefully dismissed putative concerns about the racial impacts of prevailing wage laws, calling them a divisive distraction from the real task of building alliances between construction workers of all races...

Posted: July 22nd, 2009 4:40pm

Walter Williams on Good Intentions | Mises Economics Blog


Posted: July 22nd, 2009 3:40pm

George Bush Gave Your Daughter Syphilis | Reason Magazine

By: Katherine Mangu-Ward

July 22nd, 2009

George W. Bush gave your daughters syphilis.

He also gave your teenage sons AIDS, and knocked up your Hispanic next-door neighbor.

He caused gas prices to rise and fall and rise and fall and rise a lot and fall again and rise and fall.

He created 4.8 million jobs, a piddly figure when compared to Bill Clinton's prodigious 23 million. Those jobs were lost, however, in the recession Bush caused.

He also ended a terrible drought after the American people sacrificed hundreds of fat Texas cattle in his name.

And so the list goes...
Posted: July 22nd, 2009 1:10pm

Green Baptists Preach Salvation by Breaking Car Windows | Mises Institute

By: Tyler A. Watts
July 22nd, 2009 12:00am

I was just mentioning this very thing regarding California's initiative to get people to scrap old refrigerators & air conditioning units in the name of "increased efficiency".


Who could possibly claim that buying up drivable used cars at prices far in excess of their market value, for the express purpose of destroying them, will be beneficial for the economy or the planet? You guessed it: a combination of economy-saving politicians and earth-saving green activists are peddling the wonders of a new government program popularly known as "Cash for Clunkers." The Consumer Assistance Recycle and Save Act of 2009 has the two ostensible goals of jump-starting the stalled automobile industry and combating global warming (or climate change, or whatever they're calling it these days) by replacing old, gas-guzzling smog machines with new, more fuel-efficient, cleaner cars...
Posted: July 22nd 2009 12:59pm

At 6ft6ins and 34stone, meet one of the largest and heaviest women on the planet - and she's still growing | Daily Mail

By: Mail Foreign Service
July 22nd, 2009

A rather curious & interesting story...

Standing at 6ft 6ins and weighing 34 stone, this woman has been dubbed a modern-day giant - and, alarmingly, she is still growing.

Tanya Angus, who suffers from a rare growth condition, is already one of the tallest and heaviest women on the planet.

Now doctors say she is the only woman in the world whose growth cannot be halted by medication...

Posted: July 22nd, 2009 9:33am

Barrett Booed at Greenville Tea Party | YouTube

Reblogged from my buddy Kenny, who said:


Upstate Republican Congressman Gresham Barrett voted for the Wall Street/TARP bailout, and when speaking before this Greenville tea party protest on April 15, the crowd overwhelmingly shouted him down despite his attempts to pacify his constituents with conservative rhetoric.

He just keeps up his rethoric like he's in a different world - fucking astounding!!!"

Listen for all the hilarious Neo-con talking points to a mostly libertarian/anarchic crowd. Dumbass.

The message from folks in Greenville to Congressman Gresham Barrett was clear Friday evening: Voters are mad about the bailout he voted for and the massive government stimulus package he is now supporting. MORE INFO:

Posted: July 21, 2009 8:18pm

Administration Delaying Release of Key Economic Report | Washington Post

By: Michael A. Fletcher Washington Post
Staff Writer

July 20, 2009 5:04 PM

This seems like non-news, in terms of any kind of conspiracy for releasing the report later:

eg: Asked about the speculation that the delay is linked to the ongoing health care debate, Baer responded: "I don't deal in speculation. What I know is that in transition years past both the full budgets and Mid-Session Reviews have come out later than in non-transition years and this year will be no different."

BUT... it's sure as hell convenient for Obama.

The Obama administration is delaying release of a congressionally mandated report on the nation's economic conditions, spawning speculation that it is trying to tamp down bad economic news to avoid further complicating the already fraught legislative debate over health care reform.

The report, which is normally published by late July, is being delayed by several weeks, the administration acknowledged on Monday. Officials said the hold-up is not unusual in presidential transition years, noting that Presidents George W. Bush and former President Bill Clinton each published their initial budget updates weeks late.

"Because of the unique circumstances of a transition year, we -- like President George W. Bush in 2001 -- are releasing the mid-session review a few weeks later than as is usual in non-transition years," Kenneth S. Baer, communications director for the Office of Management and Budget, said Monday.

Asked about the speculation that the delay is linked to the ongoing health care debate, Baer responded: "I don't deal in speculation. What I know is that in transition years past both the full budgets and Mid-Session Reviews have come out later than in non-transition years and this year will be no different..."

Posted: July 21st, 2009 4:47pm

List of Defunct US Automobile Manufacturers | Wikipedia

For anyone who thinks or thought that America can't live without GM or Chrysler...
Below is a list of defunct United States automobile manufacturers from the 1800s to the present...
Posted: July 21st, 2009, 12:09pm

5-Legged Pup Rescued from Coney Island Freak Show | ABC News New York
Sunday, July 19th, 2009

Strong, who got his deposit back, said he would have given Lilly a good life. Though he's disappointed, he said, "Sometimes, you just gotta say, 'OK, I still have nine live, two-headed animals' and move on.''
A five-legged puppy was saved from life in a Coney Island freak show thanks to a kindhearted Southerner who paid $4,000 for the pooch.

Allyson Siegel, 45, of Charlotte, N.C., outbid a Brooklyn freak show operator to buy the pup because she couldn't bear the thought of the Chihuahua-terrier mix ending up at the sideshow that featured disfigured animals, the Charlotte Observer reported.

Posted: July 21st, 2009 9:21am

07/20/09 Ron Paul: Health Care is a Good, Not a Right
Texas Representative, Dr. Ron Paul

Beautiful explanation from Dr. Paul...

Posted: July 20th, 2009 9:56pm

IG: Treasury 'Failed' to Adopt Bailout Safeguards | The Hill By: Silla Brush July 20th, 2009 10:47am

Neil Barofsky, the special inspector general over the Troubled Asset Relief Program (TARP), will tell lawmakers on Tuesday that taxpayers are being left in the dark about what banks are doing with bailout money, don't know the value of the government's investments and will not know the full extent of how the money is invested.
Posted: July 20th, 2009 4:29pm

Understanding "Austrian" Economics | Mises Institute By: Henry Hazlitt [This article originally appeared in The Freeman, February 1981.]
Something should be said also about the sharp distinction between the Ricardian and the Austrian concept of "cost." The Ricardian (and the modern businessman) thinks of cost as a money outlay. But the Austrian economist has a much wider concept, what economists now call "opportunity" costs, or "foregone opportunity" costs. Such costs exist, of course, not only in business but in all our decisions and actions in life. The cost of learning French in any given period is to forego learning German, or to learn less mathematics, or to give up some tennis or bridge, and so on.

Menger emphasizes the importance of time and the role of uncertainty in the whole productive process. He also points out that no single good, no matter how abundant, can maintain life and welfare, but that these depend upon the production of combinations of goods of different kinds in the proper proportions. And he points out, finally, that the process of production cannot be expected to go on at an adequate rate unless there is adequate protection of property...
Posted: July 20th, 2009 3:21pm

LRO Sees Lunar Landing Sites | NASA

Maybe we can put the faked moon landing thing to rest, eh?
NASA's Lunar Reconnaissance Orbiter, or LRO, has returned its first imagery of the Apollo moon landing sites. The pictures show the Apollo missions' lunar module descent stages sitting on the moon's surface, as long shadows from a low sun angle make the modules' locations evident.

The Lunar Reconnaissance Orbiter Camera, or LROC, was able to image five of the six Apollo sites, with the remaining Apollo 12 site expected to be photographed in the coming weeks.

The satellite reached lunar orbit June 23 and captured the Apollo sites between July 11 and 15. Though it had been expected that LRO would be able to resolve the remnants of the Apollo mission, these first images came before the spacecraft reached its final mapping orbit. Future LROC images from these sites will have two to three times greater resolution.

Posted: July 20th, 2009 1:17pm

Barack Obama's Gaffe: seeking greater inefficiencies | Politico
By: Amie Parnes
July 20th, 2009

This must be one of those Freudian gaffes where you say what you really mean without knowing it.
Would health care reform bring "greater inefficiencies" to the country's health care system?

That's exactly what Obama said Monday when he spoke about health care reform at the Childrens National Medical Center in Washington.

"The reforms we seek would bring greater competition, choice, savings and inefficiencies to our health care system," Obama said in remarks after a health care roundtable with physicians, nurses and health care providers. "And greater stability and security to America's families and businesses...
Posted: July 20th, 2009 12:55pm

Capitalism as Drama | Mises Institute
Jeffery A. Tucker
July 20th, 2009 12:00am
...In the movie Wall Street, we are told that we should all love unions and their desire to keep wages as high as possible and fix jobs in place for generation after generation. And yet look around and see: the unions have destroyed the American car companies and they have put a serious dent in the profitability of airlines too. Their wishes are unsustainable because they are not the market's command.

In the end, who is the real destroyer: Gordon Gekko or the unions he fought? The movie ends with the unions and the government on top. History ends with the capitalists on top.

Posted: July 20th, 2009 11:26am

NASA Releases Preview - Partially Restored Apollo 11 Video | NASA

Happy 40th Anniversary, Moonwalk.

Posted: July 20th, 2009 11:15am

Monday, July 20, 2009

$23.7 Trillion in bailout obligations... What!?

It looks like all my dreams are coming true much sooner than I'd imagined (sarcasm, btw). Not only are the TARP bailouts going to cost the American people vastly more than the $700 Billion - It's being run in about as an opaque, inept and corrupt manner as even I could have imagined.

According to this report by Silla Brush at The Hill;
"Neil Barofsky, the special inspector general over the Troubled Asset Relief Program (TARP), will tell lawmakers on Tuesday that taxpayers are being left in the dark about what banks are doing with bailout money, don't know the value of the government's investments and will not know the full extent of how the money is invested.

Barofsky said that while the TARP program that Congress passed amounts to $700 billion, the total federal government support since 2007 for the economy and the financial sector could reach a far higher figure of $23.7 trillion. The government has committed significantly more money through a variety of other federal agencies and programs.

While some steps have been taken, “it has repeatedly failed to adopt recommendations that [Barofsky] believes are essential to providing basic transparency …” Barofsky intends to tell lawmakers, according to prepared remarks obtained by The Hill."
You read that right.

The "top watchdog" inspector overseeing the bailouts is noting that the total liabilities are in the range of $23,700,000,000,000 - this, notes Karl Denninger, is:
"nearly double the nation's GDP in debt commitments and more than 33 times the amount authorized by Congress."
His shock & outrage (and mine) continues by lamenting:
"How anyone can believe our banking system or indeed our nation's Treasury can survive the exposure of $24 trillion dollars, twice our GDP, is beyond me."
It's beyond me too...

This is insane. The counter-argument will, of course, be that TARP will make it's money back when it sells off the properties and gets a return on its investments. But you'd have to be a right twit to believe that, wouldn't you? The whole reason TARP was done in the first place was to kick trillions of tax-payer dollars to Hank Paulson's buddies at Goldman Sachs buy up houses that no one else wanted and which were overvalued to the point that they were deemed "toxic" - thus the "Toxic" Asset Relief Program. Well those houses aren't any less toxic now than they were before, and instead of banks losing a few billion, the American people (including all the ones like me who neither owned a house nor have a big stock portfolio/401k) are now going to be losing TRILLIONS instead.

Add to the criminally bad math actual crimes...
"In a separate report issued on Monday, Barofsky's office noted that banks have used government money for purposes other than increased lending, whether to build up capital cushions, repay debt or help finance acquisitions of other banks. His office is in the process of posting online responses to a survey of 360 banks receiving government aid.

Meanwhile, Barofsky's office has opened 35 criminal and civil investigations into issues including suspected accounting fraud, securities fraud, insider trading, mortgage servicer misconduct, mortgage fraud, public corruption, false statements and taxes."

And you get unadulterated awesome.

Saturday, July 18, 2009

Why We Must NOT Ration Health Care: A rebuttal to Peter Singer

The other night, I was browsing through Center for Inquiry program director, D.J. Grothe's, posted links on Facebook and happened upon an article that was already generating a fair number of positive comments.

The article was Peter Singer’s recent contribution to the New York Times Magazine, entitled; “Why We Must Ration Health Care[1]

The title itself is provocative, as it was intended to be no doubt, and I dutifully "clicked" away at my own peril. Knowing Peter Singer's previous work in animal rights and his love for collectivist utilitarianism, I have never been particularly impressed by the man. I remain unimpressed, as you will soon discover.

Singer writes:

"In the current U.S. debate over health care reform, “rationing” has become a dirty word. Meeting last month with five governors, President Obama urged them to avoid using the term, apparently for fear of evoking the hostile response that sank the Clintons’ attempt to achieve reform."

His thesis is that regardless of how it happens, each time you are unable to access a particular level of health care, you are a victim of "rationing”, and therefore we should simply accept government rationing of medicine as inevitable (and somehow better than market “rationing”) and learn to acclimatize ourselves to the realization that some lives are going to be more valuable to our benevolent central planners than others.

Unfortunately, like so many of his other
ethical positions[2], this one fails at its root primarily because he has never been able to recognize any distinction between using force and voluntarism to achieve a desired end. So in failing to understand the difference between wildly different methods of resource allocation, Singer misrepresents and possibly entirely misunderstands the word "ration" itself.

To be fair, economists have often used the word “ration” more broadly to describe any form of resource allocation, and as a result have adopted the terms “price” and “non-price” rationing to differentiate the two ideas. Personally, I believe that this is a poor choice by economists because it leads to exactly this sort of miscommunication.

So let's clear this up right now. To most people, the word rationing has a specific meaning, and that is this:

1. a fixed allowance of provisions or food, esp. for soldiers or sailors or for civilians during a shortage: a daily ration of meat and bread.
2. an allotted amount: They finally saved up enough gas rations for the trip.

That definition is what economists might refer to as “non-price” rationing. So when Peter Singer uses the word “ration” with no qualifiers in the New York Times, the average reader immediately assumes the Webster’s definition. And thus without thinking about it, readers are subtly lead to believe that there is no difference between price rationing (markets) and non-price rationing (government or other agent of force).

Non-price rationing is a concept that can, by definition, only apply to an entity with centralized control of the provision in question. Thus the word applies to top-down monopolistic systems such as government, which can control all supply of a given good and then distribute an "allotment" to people by fiat, leaving you unable to get the good otherwise.

By contrast, a decentralized free enterprise system for that same good is in fact quite the opposite of that definition of rationing!

In a free market system (and even in most aspects of our current hampered market “mixed economy”), it’s you - not the government or any other authority – who decides what value a good or service has, and you are not limited by anything other than reality and your ingenuity.

While grouping these two ideas together allows for a creative support of the state & central planning, leading people to believe that there's no difference between these two distinct methods of allocating resources is criminally oversimplified... Sadly, this is not the only mistake Singer makes - it's only the first.

From here on out, in an effort to be clear and avoid making the mistake that Peter Singer makes, I – like Wikipedia – will use the term “rationing” to apply in the sense that most everyone uses the word, using the “non-price” definition, and will refer specifically to markets when speaking about “price” rationing.

Free Market "Rationing" according to Singer

Professor Singer repeatedly rests his case on a number of mistaken ideas, but to establish his thesis, he opens the article with the following hypothetical scenario:

“You have advanced kidney cancer. It will kill you, probably in the next year or two. A drug called Sutent slows the spread of the cancer and may give you an extra six months, but at a cost of $54,000. Is a few more months worth that much.

If you can afford it, you probably would pay that much, or more, to live longer, even if your quality of life wasn’t going to be good. But suppose it’s not you with the cancer but a stranger covered by your health-insurance fund. If the insurer provides this man — and everyone else like him — with Sutent, your premiums will increase. Do you still think the drug is a good value? Suppose the treatment cost a million dollars. Would it be worth it then? Ten million? Is there any limit to how much you would want your insurer to pay for a drug that adds six months to someone’s life? If there is any point at which you say, “No, an extra six months isn’t worth that much,” then you think that health care should be rationed.”[1]

Persuasive, right? I bet you now think health care should be rationed.

That is… Until you realize that Singer is exploiting the average person’s definition of the term “ration” while actually using it to mean something completely different.

By ignoring the difference between individual choice (free markets) & supply-controlled central planning (rationing), Singer is setting up a false argument from the beginning. Since he fails to make that significant intellectual distinction, he - and thus the casual reader - is lead to believe that virtually anytime someone says "no" to a request for service, that you're experiencing rationing.

If that were true, then of course it would follow logically to say that an insurance provider denying the $54,000 treatment to extend someone's life by 6 months is "rationing health care". From there it’s easy enough to suggest, as Singer does, that if it’s already being “rationed” by the market then why not let the government do it instead? The end result is going to be the same – some people will get care and some people won’t, except now you can be sure that it won’t be your own hard work, generosity and perhaps a little luck that determines who gets treated, but the cool, intelligent reasoning of a government bureaucrat. That’s what we really need though, right?

Now, first of all – like much of the article, this idea requires you to abandon the more complex distinctions between concepts and just accept that freedom and control are the same things because the end result of both is the distribution of resources in one form or another. As one might expect of a
utilitarian[3] – ends are all that really matter, means are irrelevant.

However, the idea that an insurance company can “ration” health care also rests on the flawed premise that health care & insurance are actually synonymous. They aren't.

Consequently, when you are denied insurance, you are being not being denied health care as you are with rationing – you are instead being denied someone else’s money.

Medical insurance is supposed to be a voluntary (explaining why this is actually not the case in the United States must unfortunately wait for another time) risk pool in which contracts are agreed to up front - including maximum costs willing to be paid out in coverage in the event of an emergency. So while a company denying a claim is (as Singer rightly points out) making a judgment on the value of another person's life or quality of life – the reality that resources and money are scarce means that this is something they must do to function as intended for the bulk of their customers. We all already know this.

But in that scenario, no one has actually limited your choices - you are still free to obtain the treatment and extend your life by 6 months if you wish, or not... You simply have to choose other avenues of payment. Fortunately, there are still dozens of payment options available to most people: Is 6 more months of your life worth $54,000 out-of-pocket to you? Is it worth cashing out your 401k? Is it worth selling your house or your car? Is it worth cutting into your children’s inheritance?

And if you don't have that kind of cash lying around in assets or in the bank, is it worth hitting up everyone you know for donations? Is it worth writing applications to a charity? Is it worth asking people at your church or community groups?

Most people would agree that 6 months isn’t worth robbing a bank over, but who knows – if you value 6 more months of living over morality & over incarceration then technically that’s an option on the table as well I suppose… That’s certainly not a choice I would make, but I’m in no position to tell you what price is too high to pay for 6 more months of your own life.

The point is; it’s up to you.

All of this comes down to extremely personal decisions about what you value… And those are decisions no one else can possibly make for you. Not a government bureaucrat and not even someone as reportedly brilliant as Professor Singer.

Value is Subjective, not Intrinsic

At this point; Peter Singer has already rested his claims on a significant number of flawed premises: He's muddled the definition of "rationing" to fit his narrative. He's failed to recognize the difference between force & voluntarism. He's conflated "insurance" with health care. And underneath every bit of that, he's simply taken it for granted that the value of your life should be able to be determined by someone else – and thus it's perfectly ok for a state health care plan to deny an individual treatment so long as the "greatest good" is accomplished (which of course is the utilitarian position at its core).

But in my personal estimation, the greatest mistake of all rests with Singer's very conception of "value".

Singer, it would appear to me, generally hangs much of his conclusions on the idea that all value is intrinsic and based on an "objective" standard of utility. You see, for central planning to work at all requires a world in which all value has a fixed and quantifiable definition which can be used by rationing agents (central planners) to create their cost-benefit rubrics to begin with… And so, as if by serendipitous magic, exactly such a metric was invented -
QALY (Quality of Life Adjusted Year) units![4][5] This provides the “scientific” veneer that will allow a public servant with a slightly higher pay-grade than your local DMV worker the “tools” they need to decide whether or not your life is worth saving.

However, one needn’t look too hard to find proof that value isn’t subjective[6][7], in fact, let me offer my own humble rebuttal: Based solely on what I know of Singer's work in the social sciences, I disagree with virtually all of what he considers "utilitarian". In other words, Peter Singer & I hold different standards of values. You might find his ideas abhorrent as well, check out this one for example (from the same article):

"As a first take, we might say that the good achieved by health care is the number of lives saved. But that is too crude. The death of a teenager is a greater tragedy than the death of an 85-year-old, and this should be reflected in our priorities. We can accommodate that difference by calculating the number of life-years saved, rather than simply the number of lives saved. If a teenager can be expected to live another 70 years, saving her life counts as a gain of 70 life-years, whereas if a person of 85 can be expected to live another 5 years, then saving the 85-year-old will count as a gain of only 5 life-years. That suggests that saving one teenager is equivalent to saving 14 85-year-olds."[1]

It seems to have slipped Peter Singer's mind that he is neither omniscient nor master of the universe, nor is he clairvoyant, and hasn't the right nor the ability to judge which of those two lives is more valuable.

To Singer's credit he briefly presents the lone "counter argument" that possibly the teen in his example might be a murderer and the 85 year old still a productive citizen, but he dismisses it by saying that;

"decisions about the allocation of health care resources should be kept separate from judgments about the moral character or social value of individuals."

Ironically, his utilitarian position is doing nothing but assessing the social value of individuals... Unfortunately, just as he's glossed over numerous important distinctions thus far, he rests this argument on lumping all people into collectivist categories - and as such doesn't actually see people as unique, self-owning individuals with a right to make their own decisions, but instead as nothing but members of various groups. This schema belies the idea that value is an objective trait independent of trading and is intrinsic to people belonging to the "right" groups based on utility to society (ostensibly in terms of productive capability – much like the value one might assign to a herd of Clydesdales based on how much work they can each do in a day with a yolk around their necks).

So in Singer's own example; if you happen to be an intrinsically valuable teenager - you're safe! Happen to be geriatric or disabled? Notify next of kin.

In this version of the world, value isn't something you get to decide for yourself, but something that your omniscient, and (hopefully) omni-benevolent overlord (Singer himself perhaps?) will choose for you. Under rationing, someone else decides not only what you should value, but what your worth to society is as well… And in Singer's world if you're 85 years old and you value 6 months of life over $54,000 you're probably wrong.

Thankfully, Peter Singer is simply wrong. In reality value is subjective and varies widely from person to person and may even change depending on the day or circumstance for a single individual.

Let me explain by asking you to please consider a bottle of

Consider that hypothetically, you and I have both caught colds.

For me personally, NyQuil or its generic equivalent is the only medicine I would generally take when I have a cold. I don't get sick often, and when I do I usually like to just get some rest and let my immune system kill the illness on its own. So I place pretty low value on cold medicine. Thus, to put it in easy-to-understand & standardized monetary terms, when I have a cold, my maximum value for treatment is the cost of that bottle - typically around $5.00.

You might be completely the opposite however. Perhaps you're a worrier... Perhaps you believe that a cold could lead to something more severe like Bronchitis or a Pneumonia. I wouldn't blame you - those are risks I willingly accept, but I get that you might not be comfortable with those risks yourself. So as a result, you might not only be willing to buy that $5.00 bottle of NyQuil to get you through the night, you might additionally be willing to pay $100.00 for a doctor's appointment, and subsequently get the $15.00 package of drugs that the doctor recommended you go buy. Perhaps you decide also that just to be safe, you should get that hot water bottle for $20.00 and a $5.00 box of salt for the hot bath you'll want to take when you get home.

All said and done, if you were that person - it could be said that you value $145.00 worth of treatment when you have a cold. Alternatively, I only value $5.00 worth of treatment.

Now consider that our options aren’t either $5.00 or $145.00 – but could be anything. Every individual on the planet will do something different, will be willing to spend more or less money & time treating their cold and will have different ideas on what helps them get well.

You will note that even something as mundane as "treatment for a common cold" does not have a standard value in the above example - it has one value for you, and one for me. It’s the same for everything else as well… And you don’t need to measure value in dollars either, I often like to measure the things in my life based on the number of working hours they take me to achieve (for example my rent is about 23 hours of work).

There are great implications for understanding this reality - also known in economics as the Subjective Theory of Value[8][9].

One implication is that there is no such thing as the "correct" value for anything. Value is not something that can be arbitrarily determined, or even measured externally in QALY units, but something which can only be revealed by each person through individual ordinal preferences. As a result, this implication actually means that any effective rationing is quite impossible due to the simple limits of the knowledge of those doing the rationing.

Government planners cannot know what you value. They cannot know if you want the $145.00 cold treatment or the $5.00 one, like me. So how are they going to make decisions for you that you actually want or need? They can’t of course, which is precisely why people like Professor Singer wind up promoting useless, but scientific-sounding metrics.

Further, without getting excessively into free price theory[10], it's extremely important to note that because value is subjective, the average prices that people are willing to pay for goods carries a great deal of information about people’s various preferences and needs. High prices indicate high value and/or scarcity of supply. Low prices indicate the opposite. Higher prices compel the consumer to consume less while simultaneously encouraging producers to produce more. Low prices compel the opposite. But it’s worth noting that these signals and the potential responses can be easily skewed by government intervention.[11]

For those of you who realize that I just gave a lesson in Econ 101 from what would invariably be the first day of class, I apologize… But understanding how price functions in an economy is extremely important.

The Actual Answer to the $54,000 Question:

So by now, I hope I’ve convinced you that Singer’s arguments are tremendously flawed.

However, we’re still left with solving the ethical problem presented in his hypothetical example. Singer establishes that treatment costs $54,000 for 6 months. This is a price far above what most individuals could pay – so what does that price tell us?

It tells us that the real the problem itself is scarcity!

Peter Singer unquestioningly assumes that availability of medical treatment is constant and that resources (especially the man-made ones) are fixed – that the resources of the world as they are today are inflexible. The world’s wealth isn’t static however, and failure to understand that is something that seems to plague a great deal of academia (not to mention is the root of confusion for Marxist economic thinking). Singer assumes that $54,000 for this treatment is unavoidable and unchanging, and because he never questions that assumption he completely misses the one actual problem that needs solving in every economic equation:

“How do we make enough for everybody?”

To paraphrase Thomas Sowell[12]; why does Peter Singer start his story in the middle?

There’s not a “fixed” amount of any medicine in the world, so why does Singer simply assume that excessively high cost for medicine is just inevitable and then proceed to make arguments that could only ever apply to a good that is impossible to reproduce? Why doesn’t he instead ask why it’s expensive now[13], and what can be done about it?

My guess is that Singer doesn’t ask this question because his mindset is so geared towards a top-down approach and can’t conceive of the idea that anything but more planning and more control will solve any problems. But creating more of the drug cannot be done effectively by force – and instead, will have to be accomplished by removing the controls on the market that exist already. As I said earlier, high priced items encourage more production – but only when people are free to produce more. New companies have to be allowed to enter the market, and prices have to be set voluntarily through trading agreements, and not by government fiat. We need to allow competition and innovations in efficiency to drive the cost of medicine down. And we don’t… We haven’t since FDR imposed price & wage controls[14] in the 1940s.

The fact is, we simply don’t hear about the high cost of medicine as a consequence of government intervention very often.

For example, when was the last time the New York Times bothered to mention that it costs around 6 years and $1 Billion[15] to get a new drug approved by the FDA? The American public rarely hears that the FDA has more than doubled[16] the number of clinical trials needed for new medicine. No one bothers to mention that Medicaid & Medicare chronically underpays[17] private health care providers for their services – forcing them to make up their losses by charging private insurers & patients more than they otherwise would. Nor does anyone remind the American public that with the help of congress & funding of the US taxpayer, the AMA restricts[18] the number of medical licenses granted and thus the number of available doctors is always kept at a minimum – a standard tactic for any union to keep out competition for labor and force employers to pay higher wages to the members of their club. These are just a few of literally hundreds of examples where government intervention has directly caused a significant increase in the cost of medicine in the United States.

There are so many similar competition & market killing interventions that it’s almost impossible to choose which to leave out. And that’s all without really discussing the perverse incentives throughout the entire system by spending other people’s money.

But these topics aren’t even addressed by Peter Singer! Nope… The assumption readers of his Times article are required to hold is that Sutent costs $54,000 and that’s that. The cost of the drug is high, fixed, and there’s nothing to be done about it. Singer presents a world where you have Option A: Let greedy insurance execs “ration” health care, or Option B: Let a (non-greedy?) government bureaucrat do it.

But Professor Singer forgets to give you Option C: Get rid of the ridiculous government interventions into the market. Allow insurance companies to compete nationally, allow competition in medical licensing, allow nurses & other non-MD health professionals to treat minor injuries & illnesses and set up their own practices, remove the barriers to new competition, make it easy for drug companies to license their inventions to other manufacturers and get the government out of the business of paying for health care entirely.

Do all that (and more) and we can reap the benefits of the massive increases in the supply of doctors, medical machinery, drugs & available choices to patients – and the lowered prices that will result.

When that treatment is mass-produced, widely available and only costs $5,400 instead of $54,000 – I have a feeling not too many insurers are going to deny you the extra 6 months… And even if they do, at that price, how hard is it going to be to find someone else to pick up the tab?

The answer to Peter Singer’s scenario is not to sit around deciding who we should let die. The answer is to produce enough so that everyone can live.

Final Thoughts

Singer’s arguments seem intelligent on the first glance, but much less so when you realize that they are the wrong arguments entirely. So I hope I’ve convinced you to take a deeper look at what Peter Singer is saying in the NY Times piece and at the premises he simply takes for granted and expects you to avoid questioning. But if you’re still on the fence, let me leave you with one last hypothetical scenario to illustrate my point:

Imagine you have 10 of your closest friends over for dinner. You’ve set up the dining room and laid out placemats when the doorbell rings… Your friends have arrived and as a surprise, one of them brought a date! You’ve only set 10 places and are not prepared for 11 people… So what do you do?

Someone will clearly have to sit on the floor. So how do you decide who it’s going to be?

Do you choose the shortest or the tallest one? Do you pick the oldest or the youngest? Do you choose the person you saw most recently, the one you like the least or the one who isn’t all that hungry anyway? Do you let them fight it out amongst themselves or draw straws to see who gets to eat alone?

I suspect you could pick any one of those fine options and successfully ration your limited seating.

…Or... You could just go get another chair.

Works Cited:

[1] Singer, Peter. "Why We Must Ration Health Care." New York Times Magazine 15 July 2009.

[2] Staudenmaier, Peter. "Peter Singer and Eugenics. " Institute for Social Ecology. 18 July 2009

[3] "The History of Utilitarianism." Stanford Encyclopedia of Philosophy. 18 July 2009.

[4] "Quality-Adjusted Life Year." Wikipedia, the free encyclopedia. 18 July 2009.

[5] McGregor, Dr. Maurice. "Cost-utility Analysis: Use QALYs only with great caution." Canadian Medical Association Journal 168 (4) (2003).

[6] Von Mises, Ludwig. Epistemological Problems of Economics. New York City, NY: New York UP, 1981. Originally Published 1933, 1960.

[7] Von Mises, Ludwig. Human Action. New Haven, CT: Yale UP,1949

[8] "Subjective Theory of Value." Wikipedia, the free encyclopedia. 18 July 2009.

[9] Menger, Carl. Principles of Economics. Libertarian Press, Incorporated. June 1999.

[10] "Free Price System." Wikipedia, the free encyclopedia. 18 July 2009

[11] Friedman, Milton. Price Theory. New Brunswick: Aldine Transaction, 2007.

[12] "YouTube - Thomas Sowell - Welfare." YouTube - Broadcast Yourself. 18 July 2009

[13] Wasley, Terree P. "Health care in the twentieth century: a history of government interference and protection." National Association for Business Economics Journal April (1993). 18 July 2009

[14] "Records of the office of Price Administration [OPA]." National Archives and Records Administration. 18 July 2009

[15] Katiin (Ph.D), Kenneth I., Dr. Christopher-Paul Milne (DVM, MPH, JD), Joseph A. DiMasi (Ph.D), Ken Getz (MBA), Janice M. Reichert (Ph.D), and Dr. Richard I. Shader (MD). Outlook 2008. Rep. Boston, MA: Tufts Center for the Study of Drug Development, 2008. 26 June 2009.

[16] Miller, Henry I., and David R. Henderson. "The FDA's Risky Risk-Aversion." Stanford University: Hoover Institute - Policy Review 145 (2007). Hoover Institute - Policy Review - The FDA's Risky Risk-Aversion. 26 June 2009.

[17] "GAO Report Confirms: Medicare Underpays for Anesthesia Services." Bio-Medicine - latest biology and medical news/technology. 18 July 2009

[18] Cauchon, Dennis. "Medical miscalculation creates doctor shortage." USA Today 3 Feb. 2005.