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Ukraine hosts this years Eurovision, and have chosen the hip-hop anthem of the Orange Revolution as their song.
"No to falsifications!... No to lies! Yushchenko - yes! Yushchenko - yes! This is our president - yes, yes!"
"We aren't cattle!... We are Ukraine's daughters and sons! Now or never! Enough with the wait! Together we are many! We cannot be defeated,"
--from the BBC
--listen to an audio clip here
I know who i'll be supporting this year!
Although proudly enamoured by the beauty of free markets, I try not to fall into the trap of blindly defending any private firm. Corporations can be evil, vile and worth throwing bricks over. But to me, they're not geniune. They gain their power and corruption from their ability to obtain political influence, and this is an assault on freedom.
Norberg wonderfully encapsulates my views on corporations:
By capitalism I do not specifically mean an economic system of capital ownership and investment opportunities. Those things can also exist in a command economy. What I mean is the liberal market economy, with free competition based on the right to use one’s property and the freedom to negotiate, to conclude agreements, and to start up business opportunities. What I am defending then, is individual liberty in the economy. Capitalists are dangerous when, instead of seeking profit through competition, they join forces with the government. If the state is a dictatorship, corporations can easily be parties to human rights violation, as a number of Western oil companies have been in African states. By the same token, capitalists who stalk the corridors of political power in search of benefits and privileges are not true capitalists. On the contrary, they are a threat to the fee market and as such must be criticized and counteracted. Often, businessmen want to play politics, and politicians want to play at being businessmen. That is not a market economy; it is a mixed economy in which entrepreneurs and politicians have confused their roles. Free capitalist exists when politicians pursue liberal policies and entrepreneurs do business.
--Johan Norberg, In Defense of Global Capitalism
Also, I think Steve's post called Won Ton or Burgers is particularly relevant.
A minimum wage is a measure with the stated aim of raising living standards for the poor. Who could object to that?! ME.
One of the most fundamental aspects of economic theory, is that policy has consequences - usually unintended. If firms are currently paying people £4 per hour, there's probably a good reason - that the worker is "worth" £4ph to the firm. If not, then there is a market force that raising the wage and so govt. action is unnecessary. This shows how a minimum wage will affect the profitability of a firm, and when a company goes out of business a state law over "fair pay" is irrelevent.
For some firms, at the margin, the increase in wage rates will make them switch from labour to capital (i.e. mechanization). Unemployment is the consequence of a minimum wage. But it might not be that stark. Legislation usually means that firing people becomes more costly. So some firms might keep on the same staff but reduce their hours, or they might not be able to expand. Unfortunately ministers are more concerned with protecting today's jobs, then increasing the jobs of tomorrow.
Now, let's look at the Public Choice argument. Might the legislation be driven by self-interest, rather than benevolence? A minimum wage will benefit those who previously worked in low-paying jobs, who now retain their jobs. These tend to be people with bargaining/political power i.e. trade unions. It's no surprise that miniumum wages are driven by the unions, and implemented by the parties that rely on them. Public Choice shows the harmful consequences of interest groups: they can concentrate benefits on their members, and disperse the costs amongst society at large.
I've had two jobs where the pay was below the minimum wage. The first, I found another one and quit. The second, I was not being "exploited" because I was more aware of the complex mix of non-pecuniary pay (in the form of training) than a government official could ever ascertain. Indeed there were several other workers, more than happy with the situation. If the tax man had found out we'd have all been out of a job. If you fear for the world being run by massive corporations, you should be worried by this - minimum wages and other such labour regulations make starting a new small business harder.
With this in mind, I was reading the BBC article: Minimum wage increased to £5.05
The minimum wage will rise in October, benefiting more than 1m people, the government has announced...
Businesses wanted it frozen, warning more rises could damage competitiveness but the unions want a £6 rate...
The Trade Unions Congress welcomed the increase, but has called for a £6 minimum wage by next year.
So far, so expected: firms are unhappy, the unions want more. For me, this is reason enough to oppose the rise. A business should have the right to offer whatever contract it deems feasable, and the only right an employee should have over a job is that their contract is adhered to. But I imagine other Filter^ readers are unswayed by this "property right" argument, so I'll proceed.
The recommendations came from the Low Pay Commission which said the number of jobs had continued to grow since the minimum wage was introduced in 1999
Ah - the evidence conflicts with my predictions, and so my surprise will cause a rethink. My first thought was that the economy is growing so strongly, firms have a little room to "absorb" the costs. Indeed:
"We have therefore recommended only a slight increase above average earnings, and concentrated it in the second year to allow business more time to absorb the impact," said chairman Adair Turner."
Implication being that a minimum wage doesn't really cause harm, as long as it's done slowly. Maybe that will convince Filter^ readers that this measure to get the young out of poverty is working... but i'll proceed.
The government says most of those on the minimum wage are women - with many working in cleaning, catering, shops and hairdressing.
I thought I'd look at the figures. At the Low Pay Commission website I looked through a research paper called Impact of the National Minimum Wage on the Hairdressing Sector.pdf and noticed the second headline, from the executive summary:
The most common response of salon owners to the increased costs generated by the NMW in hairdressing took the form of price rises for customers.
So unemployment doesn't rise, but the costs are passed on via price rises. Two problems. Firstly, inflation is a massively harmful phenomena. But secondly no one should care what their nominal wage is, because money is only useful in that you can buy things with it. Your "real wage" is the relationship between your "nominal wage" (what's on your paystub) and the price level. If the minimum wage goes up by 50p, but prices rise as well, you're not any better off. Indeed your worse off, since now you're living in inflation.
That, is some preliminary discussion of minimum wages. Far from complete, I hope i've exposed the myth that it is come charitable act that makes people better off. It is a means for those with political power to make short term benefits, at the ultimate cost to everyone.
Update: Thanks to Quinn for pointing out some more (and better) economic reasoning at Stumbling and Mumbling
Glorious summary from Dead Men Left:
Blair on new "anti-terror" legislation: lives more important than liberty.
Blair on necessity of slaughter in Iraq: liberty more important than lives.
Whilst I'm at it
This classic allegory was sculpted by James Ingram in his textbook International Economic Problems (John Wiley, 1970). The summary presented below was written by Robert Schenk, and is available here.
There is a mysterious entrepreneur, Mr. X., who announces to the world that he has found several amazing discoveries that allow him to produce cheap televisions, automobiles, cameras, and other goods. He sets up a plant on a large tract of land along the coast of North Carolina; hires 5000 employees who are sworn to secrecy; and begins buying grain, coal, and machinery. As the trains of grain and coal roll into his factory, other trains full of televisions and automobiles roll out of his factory into showrooms across the country. Mr. X is hailed as another Edison or Bell, and his company becomes a favorite with Wall Street investors.
Consumers love Mr. X because his products are so much cheaper than what they could buy before. Of course, his competitors dislike him, but their attempts to get laws restricting his operations get nowhere. The Houses of Congress ring with speeches saying that some economic adjustment is an inevitable by-product of technological progress.
Then, one day a small boy trying out his new skin-diving gear accidentally penetrates Mr. X's security shield and learns Mr. X's secret. Nothing is produced at the factory. It is all a front for a giant import-export business. Mr. X transforms grain and coal into autos and televisions by trade. His secret revealed, Mr. X is reviled and his factory shut down. Members of Congress proclaim that the American standard of living has had a narrow escape from the threat of cheap foreign labor and urge more money for research in industrial technology.
Here is a recent essay intended to explain the principle of comparative advantage:
The famous author Leonard Funk has a large garden, and his study overlooks the immaculate lawn. He is proud of his garden, enjoys tending to it, and will spend most weekends sharing his time between writing and gardening.
This weekend, however, Leonard has an important deadline in which to finish his latest manuscript and now that his time has become scarcer, he must make an economic decision. Every hour he spends in the garden, is an hour he can’t spend writing, so he’ll focus on the activity that’s most valuable to him. This weekend, it’s writing.
He hires Jim to mow the lawn, and settles in the study to begin typing. But Jim can’t mow in a straight line, he keeps taking a break, and is taking far longer to complete the task than Leonard normally takes. We can say that Leonard is the more productive gardener, and the more productive writer. He can mow more square feet per hour than Jim, and can write more pages per hour than Jim. Leonard has an absolute advantage over Jim in both gardening and writing.
But clearly they both benefit from Jim’s presence. This is because even though Leonard is more productive at both tasks, he’s not as more productive at both. If Leonard does what he’s the “most best” at, and Jim does what he’s “least worst” at they can both benefit from cooperating.
This is the principle of comparative advantage: exchange is mutually beneficial if one produces that which he can do at lowest opportunity cost.
Jim is willing to mow Leonard’s lawn at a lower cost to Leonard than he can do it himself, in precisely the same way that whenever we buy a good or service, it’ll usually be far far cheaper than if we gave up the time and resources necessary to produce it for ourselves.
If both Leonard and Jim face a similar situation each week, we might expect them to adopt a routine. The more time Jim spends gardening, the more we can expect him to improve. Even Leonard’s frustrations at having someone perform a task more poorly than he could do it himself will help matters: Leonard has an incentive to provide Jim with a better lawnmower with the extra money he’s made from the extra time he has for writing. Indeed Jim might well become a better gardener than Leonard since he has specialised and invested in his task.
This is the process in which we have a “division of labour”, meaning that jobs tend to be tasks that are related to each other, but are separate operations. Knowing where to specialise, and how to divide up labour is the driving force behind the massive output and productivity of modern industry.
Download the full essay here.pdf (3 pages)
Link to exercises here
Having noticed that Eledolie recently resurrected our discussion on America, I've been at a loss to wonder if there's any point in responding. As an open scholar, the comments section are an important tool for me to allow people a response to my posts, but that debate seems to have run it's course, without offering any gains from resolution.
I was wondering if Eledolie was an intelligent person who thought deeply - since if so i'm sure I could learn a lot from the exchange. Or, is Eledolie a misguided, difficult pedant?
For one thing, there is no comments facility on her blog, and she has not responded to an email I sent. Therefore, this is the forum I must use to expose her ignorance regarding the Adam Smith Institute. I hope she decides to respond, and have her fair say.
In a post called The Crafty President of the Adam Smith Institute, she "exposes" Dr Madsen Pirie by linking to the introduction to his book "Logical Fallacies". (here).
Eledolie: he might be crafty , but he's being sarcastic!
I can only assume that Eledolie's post is ironic, and an attempt to be witty. But even if she's being deliberately stupid that doesn't insure that someone might not take it as being an accurate post. The Adam Smith Institue is a well-known think-tank dedicated to spreading the insights and wisdom of the great Scottish Political Philosopher. Clearly, the message is at odds with Eledolie's own opinions, since she feels the need to misrepresent the Adam Smith ideology as being to maintain the rich-poor gap, to cheat and plunder the wealth of others, etc.
This demonstrates that she does not understand basic economics, the lessons of Adam Smith, nor the history of the c20th. Trade increases the wealth of both parties. In a free market "cheaters" get caught, not promoted to higher levels of government service, and those countries that aim for material equality end up in ruin.
She also summarises the following Guardian article:
Another major beneficiary has been the consultancy arm of the Adam Smith Institute which has received $34m from the UK aid budget in the past six years.
As:
the Adam Smith Institute has been willing to take US$34 million in government subsidy while campaigning against government subsidy
This is complete, downright, dishonesty. Adam Smith Consultancy is a different organisation to the Adam Smith Institute. The $34m was obtained following an open tender for work for the Department for International Development. It was a fee, not a subsidy. And it had nothing to do with the Adam Smith Institute.
I hope Elodie will continue to utilise the spirit of open debate on The Filter^, and will respond to this post. Whether her post was deliberate irony, or just plain ignorance, she has cheated, lied and dishonestly spread mistruths.
Eledolie: you are the scoundrel.
Disclosure: I have no affiliation to the Adam Smith Institute, and do not speak on their behalf.
A couple of websites that I'd like to advertise:
1. www.last.fm
Last.fm builds up a personal profile of your music taste, consisting of tracks you added to your profile and tracks you listened to on Last.fm
Last.fm then compares your profile with other people, to find similar profiles (‘Neighbours’) from which to draw recommendations for new songs.
If you like shuffling, and want to find new bands, last.fm is a superb cooperative that I heartily recommend.
Last two come from Nick Schandler:
2. http://img40.exs.cx/img40/28/feuerfreimovie.swf
A beautiful, awesome, innovative animation. Turn the sound up - it's oddly breathtaking.
Last item on Schandler's list is a link to his friends that use Lego characters to make animated films. The Yellowcard one is absolute quality.
Speaking of advertising, I love this quote:
In [Russel] Crowe's opinion, making an advert is "a contradiction of the fucking social contract with the audience"
And finally, I've just realised that I'm wearing an ironic t-shirt. Oh dear, you know what that makes me....
From the BBC
Air passengers who are unable to board their flights because of overbooking, cancellations or flight delays can now demand greater compensation.
Sound good? On the surface, I can see how the European Commission can sell this to the public: we've all experienced a little shoddyness now and again, and the thought that we have increased powers to claim compensation is a nice one. Personally, I hate Ryanair following a trip from Stansted to La Rochelle last summer, where they charged me for excess baggage. I wanted to transfer some weight from my suitcase to my hand luggage but was told that I couldn't, and unless I paid the fee they wouldn't issue my ticket. I wanted to complain: either my bags were on the plane, in which case I was being held to ransom, or they weren't, in which case I could access them. But there was no Ryanair representative in the airport, so I had no option but to pay whatever they demanded. Once landed in Stansted, I was told that I should have been allowed access to my luggage, but they refused to refund my bill.
I don't need the EU to help me never fly with them again.
Looking through the comments on the BBC site, I was pleased to see a general skepticism toward the regulation.
It's simple - someone will have to pay. Some airlines have gone bust in recent years, so it's not as if they have buckets of money to throw around. The costs will be passed onto consumers. Frankly, I'd rather have cheaper tickets and less protection.
Chris, London, UKThis is clearly an attempt by the Europeans to shore up their vastly subsidised flag carriers and put the (mainly UK-based) LCCs out of business... If the LCCs are forced to pay this level of compensation on a sustained basis it will mean the end of cheap flights - something which would no doubt delight those in Brussels.
Leo, York, UKThere is a serious safety issue at stake. The final responsibility for despatching a flight lies with the captain. He or she must make a judgement as to whether the flight is safe to depart and, in so doing, considers a huge range of safety issues. If the airline is going to be financially penalised for safety related delays what pressure will the captain be under to despatch the flight? The reality is that everyone wants the aircraft to depart on time. Safety will be compromised by this excessive compensation culture.
Tristram, LondonI disagree with this. It will force the fares up and restrict travel to many who cannot afford the high fares. If people want compensation they should take out insurance and leave the good system we have now alone.
Brian Brown, AberdeenIt's wrong to think that we consumers have won any greater entitlements here. Airlines practice overbooking in order to reduce ticket prices. If they are forced to pay out more, they will simply raise ticket prices to compensate. Remember: corporations don't pay tax, only people do, since companies simply pass the cost of the tax on to their customers.
James, ManchesterEveryone here speaks of the higher ticket prices that may result but my primary concern is bankruptcies. The penalties imposed by the new rules are astronomical and once airlines start to pay out, they are going to have an even harder time being profitable. Ultimately this will cost jobs, in fact lots of them. Things are already bad enough for airlines. I can't understand how governments in their typical infinite wisdom signed up to this crazy scheme.
Jonathan PD, Paris, Francemore here
A lets not forget the relative safety of air travel, compared to automobiles. Any legislation that makes people more likely to switch from air to ground, is a policy that costs lives.
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