It’s Not Bad Being An Economist–You Just Have To Be A Liberal

Economists don’t have to be right – ever. They just have to say what fits the liberal mindset. Since the proved pedophile John Maynard Keynes told Franklin Roosevelt the way to get America out of the Depression was to make prices so high that no one could afford to buy anything, liberals have used economists to justify their failed policies.

The latest stupid prediction from the Democrats’ useful economists (DuE) fits perfectly into this construct. When faced with a terrible 0.2% GDP growth rate for the first quarter, they told us that “U.S. economic growth braked more sharply than expected in the first quarter as harsh weather dampened consumer spending and energy companies struggling with low prices slashed spending, but there are signs activity is picking up. The growth slowdown is probably not a true reflection of the economy’s health, given the role of temporary factors such as the weather and the ports dispute.” Not a true reflection?

This sounds very familiar.

After a sickly first quarter GDP in 2010, they said: “….but resurgent consumer spending offered evidence of a sustainable recovery, a government report showed on Friday.” It never happened.

After the 2011 Q1 numbers came out, the DuEs said: “The economy is just not that weak. The data shows this is a one-time thing and we’ll get a rebound this quarter.’”

Oh but the economy WAS “just that weak.” The 2011 GDP was just 1.6%!

Having been burned for a few years, the humiliated DuEs responded to the first quarter disaster of 2012 with: “Don’t panic yet. The government reported Friday that the economy got off to a tepid start this year, but that doesn’t foreshadow a repeat of the near-standstill that happened in 2011…. The first-quarter slowdown will be temporary.” The final GDP rate for 2012 was a paltry 2.2%, which certainly was a “near standstill.”

The DuEs were somewhat accurate in 2013 when they counseled against concern about the first quarter’s numbers. The GDP for 2013 thus became the exception that proves that rule.

Last year, the DuEs reverted to form; and they called a 2.1% contraction “unexpected” after one of the worst winters in memory. Things have not gotten better.

So being a liberal economist is a pretty nice gig. All you have to do is forget everything about economics and say what liberals want you to say.

The views expressed in this opinion article are solely those of their author and are not necessarily either shared or endorsed by WesternJournalism.com.

This post originally appeared on Western Journalism – Equipping You With The Truth

Overcoming Stagnant Wages: Stronger Unions And Higher Minimum Wages Are Not The Answer

Recently, many economists and politicians have expressed concern about stagnant wages and rising income and wealth inequality. Such concerns prompted 20 states and the District of Columbia to raise the minimum wage this year. Some economists, such as former treasury secretary Larry Summers, also argue that steps should be taken to increase the number of workers who are members of labor unions so they can bargain for a greater share of corporate earnings. Strengthening unions and raising minimum wages, however, will do little to help low- and middle-income Americans, and will instead reduce job opportunities for young and inexperienced workers.

Progressive economists, such as Lawrence Mishel of the Economic Policy Institute, argue that low- and moderate-income workers’ wages have been held down by their lack of bargaining power, which is partly the result of reductions in the influence of labor unions and of minimum wages that have not kept up with inflation. The percentage of workers who are members of unions fell by more than half between 1973 and 2007. Union membership in the private sector declined even more. Adjusted for inflation, the minimum wage is now 25 percent below its peak in 1968.

A higher minimum wage would affect more than 15 percent of the workforce directly and another seven percent indirectly. More than 10 percent of those who would be directly affected by an increase in the minimum wage are single parents, and more than half work full-time. If the minimum wage were raised, some workers who now earn more than the minimum wage would also be offered higher wages as firms try to hire them to replace minimum-wage workers.

Unions and minimum wages increase the wages of some workers, but at the expense of others.

Some evidence suggests that unions reduce wage inequality, but most of that reduction is within unionized firms. Higher union wages reduce the number of workers employed in unionized industries. Workers who are unable to find jobs in unionized industries will compete for jobs in other industries, pushing down wages in nonunionized firms.

There is nothing wrong with workers joining labor unions to enhance their bargaining power. The problem is that unions’ ability to bargain for higher wages is the result of laws and coercive practices that limit competition from nonunionized workers. This includes closed shop laws, which require all workers in unionized firms to pay union dues, as well as the threat of strikes, which all too often have been accompanied by violence against nonunion workers who cross picket lines during a strike. During the late 1970s, numerous deaths and millions of dollars in property damage resulted from union violence.

Labor unions have been granted a privileged position in the economy. They are immune from anti-trust laws and injunctions from federal courts. Unions have declined in the United States because many workers no longer agree with the agendas that unions are pursuing or do not think that the benefits of unions are worth the costs. In addition, growing competition, particularly from imported goods, has resulted in unionized firms losing market share and, in some cases, going out of business.

A study by the Organization for Economic Cooperation and Development reports that countries where unions and collective bargaining affect a large percentage of the labor force have higher unemployment rates. If enough workers belong to unions, unions can create an effective wage floor that works like a minimum wage, causing unemployment.

Because they apply to all workers, minimum wages cause unemployment if they are higher than what some workers would be paid in a free market. Firms will only employ a worker if the value of the additional output he contributes exceeds the wage he is paid. Thus, minimum wages result in fewer jobs for inexperienced workers with limited skills. Minimum wages also reduce the incentive of firms to train workers. Many firms will not be willing to spend much on training workers unless they can offset the cost of training by paying lower wages during the training period.

Recent improvements in technology make it easier for firms to reduce employment in response to higher minimum wages or higher wages that result from union bargaining. To avoid paying mandated higher wages, some firms are replacing unskilled workers with robots.

More important than reducing inequality is providing opportunities for the poor and middle class to improve their standards of living. The poor would have more job opportunities if minimum wages were lowered, not raised. Good job opportunities, especially for young and inexperienced workers, are more likely to be found in nonunionized industries, since unions tend to protect older, more experienced workers from competition.

Instead of more regulation of the labor market, entrepreneurs need more freedom to develop innovative arrangements that will offer opportunities, even for workers from disadvantaged backgrounds, to gain the skills and habits needed to succeed in a changing economy.

The views expressed in this opinion article are solely those of their author and are not necessarily either shared or endorsed by WesternJournalism.com.

This post originally appeared on Western Journalism – Equipping You With The Truth

Negative Interest Rates: A Brilliant Concept!

Editor’s note: This article first appeared at Forbes.com.

I have to admit that initially I was uninterested, even close-minded, about the negative yield being offered on a growing share of European sovereign debt. “It must be a short-term aberration,” I thought at first. “Completely nutso,” I sniffed dismissively as the phenomenon spread. “Who in their right mind would invest in a financial instrument that would guarantee a loss of principal?” Upon calmer reflection, I would shrug and think, “Well, to each his own, but none of those topsy-turvy debt instruments for me.”

More recently, I have taken a more tolerant attitude toward negative-yield debt. As I teach my Econ 101 students, the key to success in the economic marketplace is to set aside your own preconceptions and preferences and to acknowledge that the consumer is always right. If some of my fellow human beings want investment products that repay them less than their principal, who am I to find fault?

In fact, the more I think about it, I find myself attracted to the idea of offering such a service to satisfy this unfathomable consumer appetite for negative yields. Maybe I should announce that anybody out there who would like to send me money on the condition that I return less than all of it to them in the future is free to do so (as long as they include payment for any incidental transaction costs). From that perspective, negative interest rates are quite ingenious.

Actually, (I’m going to attempt to be serious now) what really got me thinking about the growing phenomenon of negative-yield debt was how to explain the concept to my 101 students. The traditional introduction to interest rates involves three basic components. The first is the “originary” rate of interest—the time preference between the present and the future. In years of teaching economics, I’ve never yet had a student express a preference for a hundred dollars next year over the same amount today; and I doubt I would get a different response if I lowered the payoff in the future to $99.90. Conclusion: The time preference of humans doesn’t account for the increasingly common negative-yield phenomenon.

Perhaps, then, we can solve the mystery by examining the second component of interest rates—the risk factor. Students readily grasp the rationality of lenders adding a risk premium to interest rates to compensate for lending to higher-risk borrowers. Traditionally, the primary function of financial intermediation has been to assess the creditworthiness of borrowers. That isn’t always the case at present, with government citing “disparate impact” and penalizing lenders who dare to consider risk before issuing loans. I can get my head around a risk premium of zero for government debt, since central banks can use QE and other techniques to ensure that governments have unlimited ability to return to its creditors however many monetary units it has borrowed. But a negative yield? One could certainly argue that nongovernmental borrowers, not having their own central banks, can’t give 100 percent guarantees that they’ll be able to repay what they borrow, while governments do; therefore, some creditors feel safer contracting for a negative yield from a government than a positive yield from a private entity. The problem with this line of thinking, though, is that creditors could lock cash in secure storage and know that they would get all of it back, rather than paying government to borrow their money.

The third component of interest rates is the inflation premium, which creditors sometimes demand to protect against currency depreciation. The late Franz Pick used to call bonds “guaranteed certificates of confiscation” because, between depreciation of the monetary unit and government taxation of interest income, bondholders’ purchasing power was systematically and ruthlessly transferred to government. Even today, in the bizarro world of central banks trying to “achieve” positive inflation (i.e., currency depreciation), one would think that creditors would insist on an inflation premium to offset the targeted depreciation. Instead, we have the spectacle of widespread acceptance of a nominally negative return on paper denominated in a currency that the relevant central bank is actively trying to depreciate.

In sum, elementary interest rate theory doesn’t solve the puzzle of why there are negative-yield instruments, so we need to look elsewhere. Perhaps the holders of negative-yield sovereign debt instruments anticipate earning capital gains due to increased demand for negative-yield securities in the future. This seems like a bet on the “greater fool theory” with central banks playing the part of the “fool.” I suppose it’s possible that in our strange new world of unlimited QE, chronic ZIRP, negative interest rates, etc., yields may become even more negative in the future, thereby rewarding those who solved earliest this counterintuitive riddle. Such a race deeper into the rabbit hole of negative yields may happen, but timid (blind?) little me won’t be on the buy side of those deals.

One other possible explanation for the phenomenon of negative interest rates is that central banks are trying to make their currency less attractive in currency exchanges. This is what makes the most sense to me—central bankers hope that negative interest rates will be an effective tool of currency manipulation in a world of competitive devaluations.

Negative interest rates are a weird and alarming symptom of profound economic dysfunction. In a healthy economy, interest rates coordinate production between the present and the future according to people’s composite time preferences. Today, those vitally important market signals are mangled, broken, shattered. Maybe negative-yield instruments will pay off in ways I don’t yet perceive, but I’m content to keep my distance from them and let others play that bizarre game. I’d rather preserve my sanity.

This post originally appeared on Western Journalism – Equipping You With The Truth

Seattle Update: Left Unwilling To Let Facts Get In The Way Of Push To Increase Minimum Wage Nationwide

The Democrats plan to make raising the minimum wage an election issue. Senate Democrats plan to introduce legislation to take the federal minimum wage from $7.25 per hour to $12 per hour by 2020.

Over the weekend, there were protests around the country pushing for a mandatory $15 minimum wage like the one recently passed in Seattle. As reported by Western Journalism, though the new minimum wage is being phased in over the next few years, Seattle is already feeling its negative economic impact.

survey of Seattle area small businesses found that 42 percent of employers were “very likely” to reduce the number of employees per shift or overall staffing levels. Furthermore, 44 percent stated they were “very likely” to scale back employees’ hours to help offset the increased cost of doing business. Sixty-three percent of business owners responded that it was very likely they would be raising prices. Of course, economics 101 says the demand curve ultimately slopes down as prices increase, i.e. less people want to buy what you are selling if it costs more.

National Review reports that the number of firms seeking business licenses in the city has dropped off drastically, too, roughly corresponding with the passage of the minimum-wage increase.

Not content with their victory in Seattle (and the unintended negative consequences of achieving $15 per hour), some on the far left want to see the minimum wage raised to $20 per hour. There is no need to conjecture the effect even phasing in such a plan would have on lower wage workers.

In 2007, Congress passed a law which required American Samoa to raise its minimum wage from $3.36 to $7.25 per hour in phased annual increases — the equivalent of raising our current minimum wage to $20 per hour. By 2009, the wage had reached $4.76, and the effects on the economy were very devastating. Rather than increase the purchasing power of workers, stimulate demand, or raise living standards, it had quite the opposite effect.

StarKist, one of the territory’s largest employers, laid off workers, cut hours and benefits, and froze hiring. The other cannery, Chicken of the Sea, shut down entirely in September 2009.

Heritage Foundation economist James Sherk testified before Congress:

The Government Accountability Office reports that between 2006 and 2009 overall employment in American Samoa fell 14 percent and inflation-adjusted wages fell 11 percent. Employment in the tuna canning industry fell 55 percent. The GAO attributed much of these economic losses to the minimum wage hike.

The Democratic Governor of American Samoa, Togiola Tulafona, harshly criticized this GAO report for understating the damage done by the minimum wage hike. Testifying before Congress Gov. Tulafona objected that “this GAO report does not adequately, succinctly or clearly convey the magnitude of the worsening economic disaster in American Samoa that has resulted primarily from the imposition of the 2007 US minimum wage mandate.” Gov. Tulafona pointed out that American Samoa’s unemployment rate jumped from 5 percent before the last minimum wage hike to over 35 percent in 2009. He begged Congress to stop increasing the islands’ minimum wage:

“We are watching our economy burn down. We know what to do to stop it. We need to bring the aggressive wage costs decreed by the Federal Government under control. But we are ordered not to interfere …Our job market is being torched. Our businesses are being depressed. Our hope for growth has been driven away…Our question is this: How much does our government expect us to suffer, until we have to stand up for our survival?”

Samoan employers responded to higher labor costs the way economic theory predicts: by hiring fewer workers. Congress hurt the very workers it intended to help. Fortunately, Congress heeded the Governor’s plea and suspended the future scheduled minimum wage increases.

Fortunately, the far Left need not look as far away as American Samoa to get a basic economics lesson in supply/demand and job creation. Last fall, the Freedom Socialist Party — a leading proponent of the $20 minimum wage and strong supporter of the $15 minimum wage in Seattle — sought to fill a part-time web designer position on Craigslist for an advertised wage of $13 per hour. Questioned about the group’s hypocrisy in not being willing to pay a “living wage,” Doug Barnes, the party’s national secretary responded that, based on the group’s current revenues, “[W]e can’t pay a lot more than $13.”

Nothing like actually having to make a payroll to administer a strong dose of real world economics.

This post originally appeared on Western Journalism – Equipping You With The Truth

Devastating Video Explains How President Obama Is The False Messiah

This Youtube video has a chilling message of biblical proportions. It describes itself as “apocalyptic literature” written by a pastor’s wife in “biblical prose” for a commentary of current events. It was uploaded in 2013 but is ever more relevant in 2015.

The video commentator opens by saying:

And it came to pass in the age of insanity that the people of the land called America, having lost their morals, their initiative, and their will to defend their liberties, chose as their Supreme Leader that person known as, The One.

He emerged from the vapors with a message that had no meaning; but he hypnotized the people telling them, “I am sent to save you.”

“My lack of experience, my questionable ethics, my monstrous ego, and my association with evil doers are of no consequence. I shall save you with hope and change. Go, therefore, and proclaim throughout the land that he who preceded me is evil, that he has defiled the nation, and that all he has built must be destroyed.”

And the people rejoiced, for even thought they knew not what The One would do, he had promised that it was good; and they believed.

The video runs through much of what the Obama administration has done to “fundamentally change” America. It covers taxing of the rich and redistributing the wealth, marxist policies, approval of radical [Islamic] terrorism, the falling housing market, the disruption of the coal market and increasingly-expensive electricity, amnesty, mandated healthcare, and the destruction of businesses.

The video ends with the people becoming aware of what “The One” had done to their once-great nation. The “hope” and “change” he spoke of destroyed them and left their homeland in ruin.

You may think this is a fairy tale, but it’s not. It’s happening right now.

Has Obama corrupted our great nation? Is his fundamental change our destruction? Let us know what you think and spread this message to inform those who may be blinded to “The One.”

This post originally appeared on Western Journalism – Equipping You With The Truth