Almost Classical

Minwage3 (Photo credit: Wikipedia ) Researchers at the University of Washington, asked by Seattle to study the increase in the city's minimum wage have some difficult news for the city and previous research on wages : Seattle’s Minimum Wage Hike May Have Gone Too Far | FiveThirtyEight : The study is far from the last word on the impact of Seattle’s law, let alone the $15 minimum wage movement more generally. Indeed, just last week another study used similar methods to reach seemingly the opposite conclusion: A report from the Institute for Research on Labor and Employment at the University of California, Berkeley, found that Seattle’s minimum wage, “raises pay without costing jobs,” as a press release on the study announced.   The UW study was the most data-complete study of its kind. The UW researchers work in only one of four states with complete hourly wage data. The other studies? Done in states that required "estimating" and "models" in the more e...

Where's the inflation? Where's the run-up in bond rates? Despite high debt, unsustainable long-term social spending, unfunded pension liabilities, and numerous other fiscal challenges, the U.S. bond market is strong and interest rates remain low. Companies are facing increasing energy costs, unstable global situations, falling unemployment, rising minimum wages in larger cities, and a regulatory landscape that has shifted. The Tea Party and the Occupy movements aren't exactly in the mood to reform corporate taxes, and the politicians reliant on both extremes aren't going to collaborate to improve the business climate in any meaningful way. (Yes, there are areas of agreement among most economists, across the political and theoretical spectrum, that good policy isn't good politics.) If business costs and risks are rising, prices should be rising. With all levels of government fiscally unsound (and ungovernable), bond vigilantes should be circling. In theory,...

In the Austrian School of economic theory, government debt causes "inflation." That inflation might or might not result in higher consumer prices, which causes some confusion among politicians, pundits, and the public when they hear claims that governmental debt causes inflationary pressures. Reasonably, people assume inflation always means price increases. However, what the economists are describing is a bond market response to debt financing. As I am going to discuss in another post, Paul Krugman has abused the term "inflation" when discussing Austrian economic theory. As a professor, he certainly understands that Austrian/Chicago School theorists use the term inflation to mean any devaluation of fiscal reserves. Basically, dollars lose value because the bond market doesn't have faith in the government to behave responsibly. Bond markets are strange, powerful monsters. Upset the bond market and you'll find interest rates skyrocketing. Treat the bond ...

Many in the chattering class, especially the economists and politicians on the left, keep telling us "Austerity has failed!" No, austerity hasn't been tried. I won't even bother with links to Paul Krugman's near-daily calls for stimulus — and inflation — in Europe, which would require a complete disregard for European experiences and German biases towards savings and low-inflation. Such economic arguments are beyond silly: convince Germans that an 11 percent savings rate is a bad idea? Really? Cause inflation in the hopes it will force Germans to spend money? Krugman and other economists can suggest these solutions because they know, they must know, that German citizens are not about to go on a spending binge and buy Greek, Spanish, or Italian goods. Yes, Germans really do save more than 11.4 percent of their income. And for ten years, Germany employed true austerity and labor reforms. They loosened labor restrictions (compared to the rest of Europe), slowed...

One of the arguments I've advanced in various forums, including my classrooms, is that much of the rise America experienced during and after the Second World War was "luck" — we were spared the direct destruction experienced by every other global economic leader. It's hard to lose the war of economic dominance when you're the only player in the game for two to three decades. But what about the "end" of the Great Depression before the War? First, I'm not convinced we were truly out of the Depression; economists and historians debate this. (I've noticed historians are more inclined to embrace the "FDR saved us!" line, while economists are skeptical of simplified credit to a person or political party.) FDR was not a purist; he was a political pragmatist. He spent, or cut, as he saw fit, without any grand plan. I believe it is far too simple to accuse FDR of adhering to Keynes or any other economist's views. FDR bounced from idea to...