"The boring truth is that the ideal economy is a *mixed one*; it’s built on the foundation of markets, but also contains a significant amount of redistribution, public goods provision, and industrial policy. The exact optimal balance depends on the country, and on the times; even if you happen to get it exactly right for a while, the optimal mix will change over time as countries develop, as technology changes, as trading patterns shift, and so on."
This is exactly the conclusion I've reached over a lifetime of watching and experiencing ideological rigidity from both the Left and the Right crash and burn.
Right now, Job-like, I pin my hopes on a chastened Democratic Party getting out from under the thrall of unhinged Progressivism and identifying counter productive policy and addressing it legislatively.
I also agree with the conclusion but I'm a little troubled by the imbalanced evidence for it. There are lots of examples of disasters from too much state intervention. But what are our examples of disasters from too little state intervention? What's our case against the libertarians simply being right about economics?
The aggressive, rip-the-bandaide privatization of Russian state owned enterprises in the 1990s, in the absence of good institutions, created a generation of oligarchs rather than what anyone would call a good form of capitalism.
I'm not sure there's any great evidence that free markets tend towards oligarchy. In most cases of monopoly, for example, it's largely down to regulatory or state/institutional capture, which is something the left (e.g. Lina Khan) recognise quite easily and readily.
Many of Argentina's problems were also caused by this.
Isn't the current administration, and the GOP in general, super-hostile to pretty much *any* form of regulation? Anything that impedes profit, like workplace safety, food inspection, etc.? The recent (extra-legal) elimination of the CFPB and eighteen Inspector-Generals being prime examples of such GOP-think.
And isn't such anti-regulationism (sp?) also a core part of Neo-Liberal thought?
Monopiles are natural free market avenues to achieving the same levels of control and power, there are also other ways of getting there. Free markets do not assure freedom from this, that is the role of law and regulations. Free markets do not work well independent of good rules of the road.
Poland had overall better "experience capital" and some modest degree of real governance.
Like Czechoslovakia, etc.
Russia has been operating with a social capital deficit all the way back to the Czars - and for better or worse hasn't really had any sustained governance to build its way out of its own handicap. (Contrast China, PRC which for all its flaws at some level did address major forms of social capital deficits)
Ehhh, to be fair to them I don't think that says much about laissez-faire economics. It says a lot more about the existing corrupt oligarchy that already existed in Russia, and the way that transitioning that rapidly from one to the other enabled them to reproduce their oligarchy under a supposedly freer economy. I see that more as a marker of just how bad things were under the Soviets than a mark against free markets, though it's a helpful cautionary tale about paying attention to the national details and circumstances.
At the time, economic advisors under the spell of the market urged privatization as rapidly as possible under the theory that all that mattered was freeing private sources and that the “shock therapy” would root out structural problems. It was only in retrospect that this was seen as exacerbating problems. If you were a reader of the Economist back then, you got the impression markets had magic powers.
Agreed - the hidden truths of the New Class in the Soviet system was that its real operations were essentialy this, except massively less efficient, more wasteful and even more corrupt.
Russia never having had any cultural base for good governance unlike say a Czechoslovakia or even a Poland (comparatively speaking) was (and is) and such a negative path-dependency route that
But absolutely on your last sentance - national details, circumstances, fundamentals of the "cultural capital" available are critical and can't just be assumed (or hand waived away on critiicsms like racism or cultural chauvinism - not of course that any Russian or African or whatever is genetically handicapped, but as US proggy Left is learning, one doesn't create Soviet New Man overnight)
Maybe you could point to a he repeated boom-bust cycles, corruption and inequality in the US at the end of the 19th century up until the Great Depression
Just off the top of my head...the Camp Mystic disaster. The regulatory failure that permitted the camp to be built on river flood plain in the first place and the failure of a functional warning/alert apparatus to deploy during the inevitable catastrophic flooding.
Most human development in history has occurred along floodplains and coasts, except when mountaintop redoubts were preferred for protection from marauders.
The warning system worked, but people, especially management, were not listening. This is a colossal failure of management, in my view, to have riverfront cabins in a high risk (though infrequent) flood area and not be especially alert and impose contingency planning when rain and floods are in the forecast.
Unfortunately, you can’t regulate away human error, even in states with more intrusive (eg Nixle) disaster alerts and more restrictive and costly land use regulations (like California).
The flaw in your reasoning is that we now have *evidence* of climate change induced rainbombs occurring with greater intensity and frequency. On this basis, regulatory review of a children's camp in a region noted for historical flash flooding seems like a no brainer to me. However, if there's an ideological rejection of climate change science a good faith assessment of changed conditions is precluded.
I didn’t mention climate change at all- why respond off topic to my comment rather than just posting a new comment? I suppose to a man with a hammer, everything looks like a nail.
I agree, though, that what we need are top down solutions from wise commisars to address the current existential and immediate climate disaster you believe in.
There should be no new development, no further bank loans and no further insurance (nor renewals) allowed in any area within 10 miles of the sea coast or in a 100 year flood plain. New bank loans and development only permitted in temperate areas with very low combined heating and cooling degree days and prohibited in high latitudes due to dark winters. Increasing. population density in the least energy- intensive locations and removing human inhabitants from dangerous seaside locales (NY, Boston, SF, Seattle) as well as zones with high earthquake and fire risk and little rainfall (LA) would be key. Anyone who disagrees is a denier of our immediate crisis
Depopulated northern latitudes will be the location for nuke plants and carbon sinks (arboreal forests where Canada. Scotland and Scandinavia once existed and reversion of Chicago and Minneapolis to a Great Plains ecosystem)
Are you on board, commissar? Or is re-education in order?
You mustn't have heard, risk management is a Thing. Insurance actuarials constantly reassess and price risk for all manner of things. Their working credo reflecting John Maynard Keynes (alleged quip), "When the facts change, I change my mind. What do you do, sir?".
There has been a marked decrease in precipitation in that part of Texas, and that river frequently floods, so those blaming climate change are missing the boat completely.
Interesting data thanks, but respectfully, they document a change in rainfall patterns. Thus post hoc ergo proper hoc, they do not document a decreased likelihood of a stochastic rainbomb weather event made more likely from the moisture laden air rolling in from a climate change heated Gulf of Mexico.
Most failed states or similar scenarios are pretty libertarian. They don't crash in the same way countries that veer too far left do, since there's little to lose in the first place. Nevertheless, I feel confident no one is going to look at Somalia or Afghanistan as a role model.
Back then they were called Panics and were pretty much all caused by excess debt, economic contraction from one thing or another and absolutely no Federal level monetary policy to deal with it because idiots like Andrew Jackson shut down the Second Bank of the US due to a tiff with Nicholas Biddle.
A Panic started about 1837 followed by little to no recovery pretty much until gold was discovered in CA in 1949. There were plenty more Panics from the 1870s into the 20th Century, 1907 I think, until we finally established the Federal Reserve. It was pretty bad stuff.
Exactly, I've always felt it's an insane response to look at problems of the day and have your only go-to move be to open up the big book of socialism/capitalism/whateverism and rule by that alone.
I would like to highlight Sweden as a prime example of how market economy friendly reforms (especially since the banking crisis induced depression in the early 1990s) have boosted growth in a open market economy with welfare state elements and also impressively increased the number of billionaires per capita while still maintaining a fairly well-functioning social safety net (at least as viewed from a distance of a couple of hundred miles across the bay).
People often miss how the Scandinavian countries actually work. Even if you just go by the Heritage Foundation Freedom Index, whom you'd think would be biased against them, they're actually up there at the top. Their economies are really allowed to run quite freely. It's just that the taxes extracted are quite high across the board to pay for the social services. But the lesson Norway in particular learned was that it was only through competitive free markets that you can generate the economic growth and revenue to sustain the social support systems people want.
I'm skeptical of how "free market" the Scandinavian countries really are. For one thing, state-owned enterprises comprise a larger share of national employment than in other countries, and a significantly higher share of national wealth is collectively owned by the state-owned sovereign wealth fund. That these state-owned enterprises are run efficiently doesn't necessarily make them capitalistic (unless we argue that capitalism = economic efficiency, which is begging the question). For another, most of them have extremely high rates of union density (somewhere in the range of 50-70% of total employment). The "free running" in Nordic countries is more accurately described as corporatism, where organized interests (in this case labor and capital, with the state as a referee) bargain collectively on a national scale. I don't know about you, but if 70% union density and centralized wage bargaining is a characteristic of "free markets" then the term pretty much loses much of its original connotation (minimal state involvement and purely-individualistic market processes).
Apart from the Norwegian oil fund (which is an ingenious solution to avoiding govt bloat and mitigating resource curse) there are no significant Sovereign Wealth Funds in the Nordics. The state does own majority stakes in listed companies that are deemed as critical infrastructure (base power generation, Finnish airline - but no airlines in other Nordic countries) but those are very much operated on market economy principles, which the EU state aid rules also require. Unionisation has less practical significance in open export oriented economies where global competitiveness is a factor. Apart from Norway (where economy is boosted by oil), wage levels are quite modest compared to Central Europe, let alone the US. Number of hours worked in unionised parts of the labour market (ie most of it) tends to be significantly lower than in the US, though, probably dragging down productivity per worker in many fields when compared to the US.
..but out NYC Dem Primary winner says that Billionaires should not exist!
This is among the things I dislike about American leftism. We are always compared to European countries, but only when the European country is more left on some issue. This leads to a very false picture of the US as a deeply right-wing country. There are many areas in which US policy is more "left", but we never hear about these from the usual suspects.
* US spends more on public K-12 education than most European countries
* US tax code is more progressive than European countries. Taxes on high earners tend to be quite similar (don't forget about FICA and SALT!), while it is the tax rates applying to median incomes where the US rates are much lower.
* US taxes citizens on all their global income, while European countries only tax citizens on their domestic income. Thus, Europeans can opt out of their tax code by moving, while Americans cannot.
* Programs like Medicare and Medicaid have a high cost per beneficiary compared to many other country's healthcare programs. The relative "stinginess" of the other programs is never considered.
* The minimum hourly wage is below $16 in all European countries. Finland, Sweden, and Denmark do not even have minimum wages (wage floors are set by sectoral bargaining, but there is no national wage floor). Several US states have minimum wages above 16%, and some cities like Seattle ($20.76) and San Francisco ($19.18) are far higher than any European min wage.
I could go on, but I think this list is adequate to make the point that the US is not strictly more right-wing, economically, than Europe. Europeans, on average, receive more benefits from government, but they are far less fixated on having only rich people pay for those benefits. If we are stingy towards poor people, this is mainly the fault of our stingy masses, that pay essentially nothing from their ample incomes to help others, while the rich pay for essentially all support of the poor. The middle does not even cover the cost of their own benefits. In other words, it's exactly the opposite of the lefty media narrative.
Yeah, but those welfare state entitlements were never designed to support the large percentage of recent immigrant population that live off the. They apparently have a big violence problem, as well. Police no-go zones, that sort of thing.
Yes, which is why both Denmark and Sweden are now coming down *hard* on immigration, because it's destroying their countries. It might be too late for either country to survive what they invited, but they're at least trying to reverse the problem. Both are dabbling in remigration policies, which i think over the next five years we'll see become totally mainstream policies across Europe including the UK.
They are not "destroying" their countreis for God'sake nor are the countries at risk, this is compelte xenophobic nonsense and frankly racism.
Now the ghettos and integration and (tiny really geographically) no go zones are a real and legit failure of extremely naive and magical thinking driven immigratoin policies and integration policies - legit and not nice urban problems.
But they are not except to irrational and innumerate xenophobes in any way "threat to survival" of the nations except to irrational racists.
And this is also racist xenophobic nonesense -innumerate illiteracy that has no basis in real numbers. Rather a revival of the kind of nasty nonsense once written about the Eastern Jews flowing into W. europe in the 20th century with all the same foundations including in magical thinking innumeracy.
Concentrated serious urban roblems and fundamentally stupid immigration integration concepts driven by Lefty magical thinking, absolutely yes but none of the countries are at risk of any survival any more than they were from Eastern Jews or from Gypsies or other visibile minorities.
Totally unscientific opinion, but rural Sweden felt very recognizable to me when I visited there in January. Like the Midwest without a Trump obsession.
1) Great Article Noah, Especially on your point that "The more complicated, nuanced truth is that which economic policies are best depends a whole lot on where you start. "
Beyond it being country specific, its also industry specific as well. I would also make the point that it’s not just where you start — but also how and when you liberalize that shapes the outcome. Maybe for Argentina, it was so backwards that just any liberalization at any time was good, but for most countries when matters.
2) You are 100% right on India. India used to be a tightly controlled, inward-looking economy that required a license for any business activity. India borrowed a lot just for sluggish growth. When the Soviet Union died and the rupee-ruble clearing system collapsed, India was no longer shielded with the USSR's subsidized oil, and India was in a balance of payments crisis. It was only after they went to the IMF and removed parts of their license Raj, privatized state owned firms, devalued the rupee, and allowed more fdi is when they got to growth.
Honestly, India may need another round of liberalization, they still have too many distortionary subsidies and price controls.
3) Even with China, you are correct that its liberalization helped post-Mao. But I think China tells a different story. Yes, China took a (non-policy conditional) IMF loan post-Mao, but it did its liberalization on its own time table, which shows that sequencing is also an important aspect of liberalization. There were aspects that the IMF suggested that China should do in the 1980s that it didn't do until the 2000s. The 1980s were largely dissolving farming communes, allowing a dual track pricing system, making state owned enterprises, special economic zones, and reforming SOEs. But in the 2000s, it was largely about privatization as you said. I wonder what would have changed if China privatized first or allowed free pricing first instead of reforming SOEs and dual track pricing?
4) Sadly, going too hard on liberalization can also turn to shit. The privatization drive from the USSR to the Russian Federation had a lot of issues from debt default and oligarchy from a few crooks buying all the vouchers. Russia basically didn't recover until the 2000's China commodity boom fueled supercycle.
Agred, Noah has nicely put a finger on "point of departure" and exactly right on country specfiic and industry specific (the Indian example of the Liscence Raj as it was sourly named by smart observers.
The failure of the Tunisian revolution failed very much on the Kingdom of Liscencings that Ben Ali put in place as rent extraction means - and they still have not fixed sadly
One trick is to keep the micro and macro laterization in sync. Micro liberalization to move resources from less to more productive use should not produce unemployment of resources.
"The boring truth is that the ideal economy is a mixed one; it’s built on the foundation of markets, but also contains a significant amount of redistribution, public goods provision, and industrial policy."
That's utter crap. The optimal amount of redistribution and industrial policy, from a purely economic perspective, is exactly zero. The optimal amount for a better *society* overall is not zero, but that's not the same thing. Don't confuse improving society with improving the economy (or vice versa!).
Ok, but how many present-day Americans would prefer to live in America in the 1920s? Assuming you weren’t one of the Astors or Rockefellers or other rich people, you’d be busting your ass working in a steel mill or mine for a pittance by today’s standards. And when you were too old to work and your family couldn’t afford to support you, or you had no family, say, you were a childless widow, you were shit outta luck.
Now we have a bit of a motte and baily argument. The original statement was that zero redistribution looks like 1993 Somalia.
My point is that that doesn't have to be true. It's quite possible to have a stable western society with zero retribution.
And I would argue there's a pretty wide range of societal outcomes possible independent of the level of redistribution that really depend on the rule of law.
And from an economic perspective do just fine.
I agree that most people prefer a safety net. IE that sacrifice pure economic efficiency for other values. And that's fine. But those tradeoffs do exist.
I like that you're clearly much more conservative than I am, but you always respond to my comments substantively and respectfully without calling me a dumbass lib or something, so thank you for that.
I don't have much time now, but my main points are:
-tradeoffs exist, of course they do, unless you're in such a shitty situation that literally anything you do would be an improvement.
-"It's quite possible to have a stable western society with zero retribution." I mean, sure, but is that our goal? Do we care about *stable* or *good for most of the people living in it*? The Antebellum South was *stable* until they were stupid enough to secede and get into a war with the industrialized North; doesn't mean their society wasn't a nightmare for all the slaves. (I was going to bring up the Roman Empire as an example of a stable western society, but then I remembered that they famously handed out bread and entertainment to the masses, so this example doesn't work!)
Hell, if all you care about is "stable," you can't do much better than North Korea: no coups, no uprisings, no drastic changes to their economic system over multiple decades, the Kim dynasty just keeps on trucking! Presumably not the ideal you wish to aspire to.
Thanks for the kind words, and agreed. I think it's not only possible, but necessary to have good faith respectful disagreements about policy. I recall many enjoyable conversations with my extremely smart Grandmother who was a good bit more liberal than I am.
I like to believe we were both better off for being challenged with good faith debate.
Regarding distribution I my optimal society does have have a government safety net. Though we probably disagree about the size. In particular I'm just very concerned about the amount of spend we have, and am not willing (or able) to pay a whole bunch more in taxes.
And would like more strings attached when we do. Basically if you are going to get government help you'd better be doing your part to live right.
Approximately zero, but I think that has a lot more to do with the level of technology and economic development than the lack of redistributive economic policy.
No, in principle "industrial policy" is to improve the economy. Of course we never know what the alternative would have been but S. Korea style "develop a bunch of internationally competitive export industries" kind seems to have worked well. My guess is that while aiming for exports does not guarantee, success, it can avoid the most costly failures like US protection of EV automobiles.
"Redistribution" by definition is not about improving average incomes, but if done with progressive consumption taxes, need not be an impediment to growth.
The government picking economic winners and losers does not have a good theoretical basis or a good track record in practice, even if there's a few circumstances where it worked out OK, such as South Korea. And that argument holds even less water for developed nations. The only justification for industrial policy for the US now is for national security reasons (e.g., developing a domestic drone industry, manufacturing critical drugs domestically, etc.). And even then, the only real justification is to get critical industries away from competitors and torwards allies--it doesn't actually need to be domestic in order to shift it away from China.
But if an industry is worth “strategic” investment it should be done to be an exporter, too. Yes the strategic effort should be to shift more of the world’s manufacturing capacity outside China
“In stead of picking one ideology and sticking to it, countries should recognize when they’ve veered too far in one direction, and take steps to change course.”
Yes. This is essentially how everyone should approach all ideology
Yes, from Wikipedia...here's an early critic of ideological rigidity.
*The central ideas of Heraclitus's philosophy are the unity of opposites and the concept of change. Heraclitus saw harmony and justice in strife. He viewed the world as constantly in flux, always "becoming" but never "being". He expressed this in sayings like "Everything flows" (Greek: πάντα ῥεῖ, panta rhei) and "No man ever steps in the same river twice". This insistence upon change contrasts with that of the ancient philosopher Parmenides, who believed in a reality of static "being".*
Or, as I would describe it, successful governing requires "principled flexibility". In this regard we are more or less currently without government, lurching from DJT's one ignorant, prejudiced impulse to another.
Noah you know my disdain for industrial policy, especially when it comes from a megalomaniacal moronic narcissist. Never would I have imagined that one our Parties would be so captured by a cult of personality that they would believe a failed casino owner, part time porn actor would be right person to forcebly lead our economic well being.
It is incomprehensible that Congress doesn’t debate the wisdom of Trump’s declared emergency that is forcing a global trade war. The idea that one person is attempting to forcibly compel Apple to assemble its iPhones in America, which would ultimately cost $3,000 each, is an acceptable industrial policy. It is astounding.
Yet here we have Melei fixing the Argentinian economy, which was a basket case. The Argentinian fiscal and monetary situation was an emergency. America is not in a similar situation. Take the copper tariffs Trump wants.
A 50% tariff on copper is supposed to do what? Create more open-pit mining? Not with NEPA.
Not as long as you have an entire environmental lawsuit industry. We don’t process rare earths because it is environmentally filthy. We no longer have a viable lumber industry that meets our needs due to the prevalence of legal lawsuits.
The question becomes whose industrial policy? Who gets to decide what is a critical industry that should have the hammer of the federal government? I do not in the least disagree that some products should not be in the hands of our enemies. My second job as a paramedic during COVID, I didn’t have enough PPE, I had to reuse N95 masks. China is our competitor and would be an enemy.
I don’t want Bernie Sanders creating my industrial policy any more than the ignorant Trump. As for free markets, politicians are ill-equipped to determine winners and losers in a market.
The Rosemont Copper mine in the Santa Rita mountains south of Tucson has been in development for two decades, being held up by environmentalists (for jaguar habitat, runoff and supposed native cultural sites ). It was unblocked by Trump in 2017 but then a court stopped it again on an old EIS in 2019 and affirmed by the appellate courts in 2022. Still no copper, the tariffs won’t help, probably their biggest impact will be higher demand and prices attracting on the sleazebag copper thiefs coming back again and destroying street lighting and air conditioning to get contraband to sell.
Yes, free markets work well, but do work perfectly on their own, nor do they work well for everything or without intervention, contrary to libertarian claims and their promotion of a laissez-faire version of capitalism.
Free Markets assume three things will be present to determine price and help to effectively distribute resources in an economy and those three things are supply, demand, and choice.
It is assumed in this system that the buyer or seller can choose not to buy or sell at a certain price and that they can choose an alternative instead if terms are not agreeable to either party.
This is meant to keep prices in check.
However, too often those promoting free markets forget that choice is a key component.
Free markets can break down as an effective system when barriers to choice emerge, like when there are serious shortages of necessities needed for survival or monopolies that impact choice.
An example of when it does not work as it should, all by itself, occurs for things like healthcare where one can not choose a dollar shore medical care alternative for cancer or they could die. Typically, there are only one or two good choices for survival and thus no real choice. The free market does not always work very well for equitable distribution of healthcare.
Another example where it fails is in setting a bottom price for labor.
If wages are too low, workers can't afford to take time to look for other work or gain added skills because they are forced to work almost 24/7 to survive. There also may not be other employers in their area, so they have no choice but to sell their labor at what an employer is offering. No choice.
Thus, min wages and labor laws are essential.
Monopolies can also easily form in free markets if not prohibited. They remove the choice to find an alternative and remove competition.
Fraud or deception can remove choice, as well as one can't make an informed opinion or choice under fraudulent conditions.
Shortages of necessities for survival like housing can also reduce choice due to a lack of alternatives.
Thus, free markets work well when there are laws in place to remove barriers, but they also do not work well for absolutely everything as I have mentioned, like for setting a bottom price for labor or healthcare.
The trick is to determine and remove barriers and to provide other options where it does not work well.
It is a system that is dependent on good rules for the road and laws - and does not work in the way that many Libertarians assume.
They assume that if all laws were removed that it would work well all by itself and that is simply not the case - quite the opposite. In other words Reagan was wrong because often government intervention is not the problem, instead it can often be the solution and is needed and is essential for the system to work well, but the laws have to be effective and be able achieve their intended purpose. Sure at times this might not be the case and changes need to be made to existing laws, but his overall his statement was false. Laws and rules and regulations help the system function.
We have already been there and done that with pure laissez-faire capitalism in the earlier days of the Industrial Revolution and it was down right awful, with masses living in squalor working in unsafe conditions for dirt poor wages with no way out. Manufacturing and mining used to be the worst jobs, prior to unions and labor laws, unlike today. The wealthy few controlled most everything (including politics - Robber Barons) leaving little choice and certainly no large middle class, which did not occur until labor laws and min wages and unions came into place and monopolies were broken apart.
With better rules in place, our economy did very well and more people enjoyed a better quality of life, as well.
I agree that both sides politically need to be able to see the positives and the limitations of our economic system so that they can help to write better laws to guide our economy and promote quality of life.
agreed that monopolies can be a problem. Which is why even most libertarians and really free market economists agree that there is a roll of governments to prevent monopoly. Free markets require competition.
However, markets are the perfect antidote to supply problems. Lack of supply, means prices rise. high prices leads to high profits, high profits means more companies enter the market, increase supply and prices comes down.
As the saying goes, the cure for high prices is high prices, and the cure for low prices is low prices. Then a market with competition will self correct.
A great example, is after a natural disaster. Really high prices mean that it's profitable for people from out of the area to rush in and bring needed goods to the area. Price gouging rules actually hurt the people they are trying to protect because there's no extra profit encouraging people to rush goods into an area. Only the altruists will bother.
Same applies to labor. Minimum wages, are like rent control, they artificially control the price of something. Thus interfering with the market. If you raise the price higher than the value of something then the demand for it goes down. So people will substitute capital for labor. Or if they can't then they will just raise the prices of the goods. So now you have a higher wage but it didn't accomplish anything because now the goods you have to buy cost more.
The only time it won't do that is if the demand for that labor (at the given wage) is above the artificial price control.
Actually economists just got a Nobel for work in real life settings showing that rising the minimum wage did not reduce jobs or businesses in areas that did this when compared to areas near by. In fact, more businesses moved into these areas to take advantage of the increased spending power of more people in the area from higher wages and the sale of durable goods also increased.
When wages rise, so does demand for products, and thus more workers are often needed.
In addition, employers never hire more people than they need and are not in the habit of throwing away money. Thus, when min wages rise employment tends to not decline and since min wage is not all there is to the cost of sales it only represents a small fraction of the cost since there are other factors like overhead and materials, etc. Price elasticity also impacts if prices can change as well.
History already shows that not having a min wage simply does not work. Labor is not that mobile and if one is working endless hours due to low wages they can't afford to take time off to seek other jobs or skills. Thus, they then can't choose to go elsewhere.
It's very possible to use statistics to twist numbers to say almost anything.
But we know that if the value of labor is X, and we raise the cost of labor to X + 1, then there is a huge problem.
Maybe the job doesn't get done, or maybe it gets automated away, or maybe the business just raises prices and hopes to pass it on the customers, or maybe the business closes it's doors if it can't afford to stay open.
We already know how people lived in the early days of the Industrial Revolution. Unions caused the large middle class that formed post WWII and suddenly what was once a job for only the most desperate, like mining or manufacturing were desirable and provided middle class life styles.
So, are low wages and low taxes in 3rd world countries helping or hurting? It simply causes the country to stay 3rd world.
Interesting data on what the young urban rate of unemployment ( ie high school kids with summer jobs and very newest members of the workforce-the ones who need on the job training most of all) was before the minimum wage laws and after. It seems like those you want to help the most, wind up getting hurt the most. What sounds good, isn't what is truly effective.
You want to help high school kids more than a single head of a household ? Not me. I'd rather see a low skilled single mom get closer to a living wage than see full employment of kids looking for summer jobs.
No, not teens but low skilled workers. Where if you really wanted to help them you want them to turn into higher productivity workers. While I am not 'right wing' as you seem to be implying but rather a classical liberal, I'll point out that the left wants as many people as possible dependent on the largesse of the government. They want things that sound good and ignore the evidence of whether it is working or not. Because it makes them feel virtuous. And in charge.
Until more recently were manufacturing or mining jobs high skilled?
Did you approve of their high pay?
If someone is low income and thus having to work 2 or 3 jobs how will they find time to get more skills?
Also, your notion of the left wanting more to be dependent on government is 100% false.
The ones who want wages to be subsidized by the government are businesses who want to keep min wages low. If the min wages were higher, there would be fewer who qualify for means tested programs like Medicaid and Food Stamps.
Raising the min wage would reduce "largesse"
It is not about feeling "virtuous" either, but doing the right thing is actually good for the economy. The entire economy grows with demand when people have enough to live on and even the rich get richer as well even with a higher tax rate.
No such thing as a living wages. Wages are only worth what you can get someone to pay you for your labor.
You raise the price demand goes down. You raise the price to high, and it goes away.
This is econ 101.
And not every job is going to be suitable to support a family on. For example, when I got out of the army, I started work as a busboy. Yep, that's not a job to raise a family on. That's a just getting started job.
Yes there is… “A living wage is the minimum income required for a worker to meet their basic needs and maintain a decent standard of living in a specific location.”
You seem to believe that markest won’t be manipulated. They will always be manipulated.
These topics would largely be covered in macroeconomics or productions and operations management and not econ 101 anyway.
In addition, labor is not all that goes into the cost of sales. How much a price goes up or down is also dependent on price elasticity (look up the term).
Example:
Say I make 100 coffee cups a day at 1 dollar each in cost and sell them for 2 dollars. I make a dollar each in profit.
Overhead cost is 60 cents per cup and materials are 20 cents per cup and labor is 20 cents per cup.
10 cents out of 20 cents is for min wage employees per cup. If they get a 20% raise that is 12 cents per cup.
My costs are now 1 dollar and 2 cents per cup and I sell them for 2 dollars.
Can I pass along the 2 cents per cup and raise my price? Probably not a problem, but I might want to find other savings instead or eat the 2 cents if I have a lot of competition. If not a lot of competition, I might raise the price 2 cents and it would not impact sales volume.
The idea that its a big problem or would have a huge impact if we raise min wages (that would impacting something like less than 10% of the entire workforce) is simply false. It could also be done gradually to give employers a chance to adapt.
Min wages are typically not a huge chunk of the cost of goods and services (it depends) since other costs of other types also exist as well in the product, not just labor.
If I pay someone an extra dollar, or a 20% raise my costs per item do not go up a dollar or 20%.
The principle remains the same for the single mom. You are missing the bigger point which is that these are not static groups. The way to learn skills and advance requires the ability to get into the work force and learn how to be successful. The jobs where the pay is above productivity will be replaced by automation.
You are saying increasing minimum wage means less jobs? It’s not that simple. That would happen if employment was a perfect market..the kind that can only exist in the abstract. In the real world there is no definitive evidence that increased minimum wages drives up unemployment.
Look at Professor Sowell's research: Pre-Minimum Wage Era: He points to periods like the 1940s and early 1950s, before the federal minimum wage (established in 1938 under the Fair Labor Standards Act) was significantly enforced or raised. In 1948, black teenage unemployment was around 9.4%, close to white teenage unemployment at 10.2%, per Bureau of Labor Statistics (BLS) data.
Post-Minimum Wage Increases: After significant minimum wage hikes, such as in the 1950s and 1960s, black youth unemployment rose. For example, by the 1970s, black teenage unemployment reached 30–40%, while white teenage unemployment remained lower, around 15–20%.
Studies like those by economists David Neumark and William Wascher (e.g., Minimum Wages, 2008) support Sowell’s view, finding that a 10% increase in the minimum wage reduces employment among teenagers by about 1–3%, with stronger effects on low-skilled groups like black youth. The logic is simple: if a worker’s productivity is below the minimum wage, employers may not hire them, especially in roles with thin profit margins (e.g., retail, fast food).
Economists just won a Nobel for showing that raising in min wage did not cause a loss of employment and in fact there was an increase in businesses moving in to these areas, not out. This was based on real world data and not models. Thus, perhaps there is a correlation vs causation issue in the research you are suggesting I read with other things going on in society. If total min wage jobs do not decline with wage increases, why is it declining for youth?
Since I have a degree in business and economics and have had statistics for research, I will look to see if Neumark and Mascher are engaging in assuming more than what the data shows or if there is something there.
I don’t think PipandJoe understands libertarianism, he says that they want “all laws removed” which is actually anarchy. At least they didn’t compare libertarianism to warlord controlled Somalia.
Also, one needs to remember that not all persons can participate in the process so we need safety net programs like food stamps and Medicaid as well as SS, Medicare, etc.
Too often, the GOP forget (or seem unaware) that all of this money used to help the poor ends up simply going right back into the economy when spent and is then fuel for businesses, as well. Those at the bottom spend every penny.
It even eventually ends up as corporate profits and income for wealthier persons as well, as it is spent and moves throughout the economy which expands as a result. Everyone ends up better off when the government plays Robin Hood in an efficient manner. Even if the wealthy may pay more in taxes with this system, they also make a lot more money with it, as well.
On a macroeconomic level, the system, is circular and continuous and the point is to keep the wheel spinning and providing jobs and opportunities and quality of life for as many as possible.
It is not remotely like a pocketbook or business balance sheet analogy which only have a single point of reference and are not circular and continuous. The governments role in the economy is not like a business model it is part of the larger system and what it does impacts all of it on a larger and more circular level. GOP cuts often do damage to GDP growth.
I pay $100 in taxes. The government takes their cut for administration (say $10) and then pays that out as say welfare of $90.
Now that person comes and spends their whole $90 to buy one of my widgets. After COGS and costs of running the business I probably end up with about $5 in net income.
So I paid $100 in taxes, and got $5 back in profit.
From a strictly economic perspective I certainly am NOT better off.
An economy is not zero sum and can expand and contract.
If it did not, we would never have recessions and depressions, etc.
Think about it. When we have a depression is there suddenly less of something, or less money, or did some aspect of the system break down causing a domino effect?
If a company closes down in a small town, the economic impact is far greater than just the dollar amount from those paychecks because those paychecks were spent in businesses in the area and each time the dollar changed hands, it generated economic activity, and jobs, etc. Each time those dollars had changed hands they had generated economic activity beyond that initial paycheck expanding the economy of the area, so when those paychecks are gone the economic losses are greater than they paychecks, as well.
When you look at an economy as a whole, you look at how much economic activity is taking place. The more there is the more jobs can be supported, etc. and in turn these jobs fuel more demand and the whole economy can expand.
One analogy might be a fountain with a pump and the size of the economy is represented on how many times 100 gallons of water can flow though the system in a year. This total flow is GDP or the size of the economy.
If the water level at the bottom is too low, so that part of the pump intake can't function, this will slow the number of gallons of water that cycles. Low water may be like the poor not having enough to spend or not enough jobs etc.
If the water is high enough to cover the intake, it will operate efficiently and maximize flow rate.
People at the bottom of the income scale and their ability to spend and participate in the economy is like the level of water in the fountain. When they spend and they spend every single penny, their spending flows into businesses, perhaps the 2nd tier of the fountain. These folks and businesses in tier 2 also spend and the more they make the more they spend this then allows the pump in tear 2 to operate efficiently. They also create jobs if demand or flow from the bottom of the fountain is good and these jobs lead to more water of income also filling the bottom level. They spend and invest and the money flows into tier 3, etc. incomes for the wealthy. When consumer confidence is high, the flow rate increases as people feel confident enough to spend.
If those in the bottom do not make enough to spend in the economy the pump does not work effectively. The ability for tier 2 to function also declines and thus tier 3.
There is a domino effect and the pump begins to run dry and the whole economy shrinks (cycles less often) and we get a recession and the more it shrinks the more the dominoes fall.
This can also happen when water that flows up to tiers 2 and 3 do not flow down again in the forms of jobs and growth etc. but instead are invested in already existing passive assets. When there is not any increasing demand from consumers at the bottom and middle, the wealthy and businesses have no incentive to expand even if they get tax cuts, and the fountain level can get or remain too low at the bottom.
The truth is that when benefits are cut for the poor, they have less to spend in the economy, and this means less money flows upward and it also all flows more slowly, as well. The entire economy shrinks and those at the top make less as well.
So that dollar not spent for the poor person, just like a factory closing, causes a far greater impact than just that one dollar throughout the entire system.
This is what is meant by the multiplier effect.
Helping the poor or those caught in recessions or areas of large factory closures is also referred to as "priming the pump" for the economy.
Those at the top benefit as well by a factor much larger than that initial dollar spent.
Each time a dollar is spent it can generate additional economic activity as one person's spending becomes another person's income and on and on and on, it is continuous.
The poor and lower middle class are "the many" and tend to spend every dime they can get on necessities. Those on each tier above tend to be fewer in number and spend less of a percentage and our economy is 70% based on consumer spending.
Because we are measuring economic activity, dollars on a maco-level are viewed as measurement tools that facilitate these transactions and are spent more than once in a given time frame as one persons spending then becomes another person's income. We do not count dollars in bank accounts as GDP we measure economic activity.
If an economy was zero sum we could simply measure dollars in accounts or the fountain water capacity, and not worry if there was any exchange or flow or not how many times it cycles or how quickly how much economic activity is being generated. Just measuring stagnant water or paper dollars just sitting there is meaningless.
Thus, your example is simply not related to how an economy works as a system.
Macroeconomics is interesting and when you learn about it you realize that it has nothing to do with a single point of reference but is about how it all works as a system. Pick up a book on the topic.
My analogy above is simply meant to be the "gist of it" and combines concepts like the multiplier effect with the velocity of money into a fountain analogy so it is just a rough conceptual example.
My wife and I spent the month of April and early May in Argentina. Based on my conversations and observations (all anecdotal, of course), most everyone except those used to feeding off the government trough (a large percentage of the population) is pleased with Milei, whereas the unions and government (or formally government) employees are not. Prices did not measurably change during the time were were there (I am told there were days in the recent past where they would change the store prices several times a day - imagine that). The USD-Peso exchange rate towards the end of our trip was not as good (for us) as it was in the beginning. Partly because the initial Trump tariff stuff was happening in early April and the USD lost value everywhere.
As for strikes, the public transportation unions decided to have a two day strike during our stay that messed up our plans for a week (no flights for a few days causes a BIG ripple effect). It was their third general striker since Milei was elected. I asked a few different people why they were striking, and the answer was "because they want to remind everyone who is in charge."
If you can read Spanish, I highly suggest following Federico Sturzenegger in X. What minister Sturzenegger has done under the patronage of Milei in the past year and a half is something that should be studied by every policymaker.
In his X account he describes every single de-regulatory move done by his ministry as well as the rest of Milei's administration. He does it in plain Spanish, sometimes with analogies to help the average person understand.
And even if you cannot, copy and paste into a translate app is easy enough. Chrome will translate web sites automatically, not sure if that is possible on X?
This is what DOGE should have been. Unfortunately Elon is a disruptor who thinks he can come in, fire half the employees and the problem is solved (seems to have worked for X).
Instead we got a Harvard professor who did the hard work of analyzing the problems, working with stakeholders on the solutions, and proposing effective ways to make this better. Very thankful for that.
A general conclusion I made a long time ago is that many free market initiatives will ultimately be successful at the price of initial disruptive and destabilizing effects. It’s often not a question of choosing the correct policy, but the political question of how much disruption and destabilization the populace is willing to accept. The conditions in Argentina gave Milei a lot of room to operate within. In the US in recent years, the expectations for stability and growth are sky high, and the political price for anything else is extreme.
My expectations for the US are that with Trump we will continue to get zero stability, and probably negative growth once the impact of tariffs and deportation of agricultural workers fully hit. I just hope this makes his supporters realize that he’s an ignoramus who doesn’t care about America or regular people.
A kingdom is simply a land monopoly and one of the things that can eventually happen with a pure and unfettered hands-off survival of the fittest laissez-faire free market system.
People have been trading even before they settled into societies and agriculture and began to specialize in trades.
Thus, free markets evolved rather naturally, but what happens without any legal constraints is that they tend to lead to some form of monopoly as the most successful find ways to crowd out or eliminate all competition for their own advantage.
When agriculture and trade were the dominant means of wealth prior to industrialization, land and claiming new territories and trade routes were the means of wealth.
Eventually, gaining more wealth and overtaking your neighbors created kingdoms and later they justified full control with myth making like being ordained by God, etc as an excuse for having it all and to help quell rebellion.
They got their serfs and others to fight on their behalf based on this as well as keeping many of them subservient though poverty. They could then pay them or promise to reward them if they would fight. Those in the king's favor may get titles and gifts of land.
The point I am making is that totally uncontrolled free markets do not remain free, nor in the end do they lead to prosperity or a large middle class.
Anyone who has played the game of monopoly should realize this and also where the idea for the game actually comes from. There is also at the end a "game over" for most with one "winner."
"Game over" for most is not creating a good economy.
Unfettered and unregulated for too long, free markets tend to lead to a wealthy powerful few and often subjugation. We saw a lot of this occur in the days of the Industrial Revolution and the Robber Baron's as well, until the "trust busters" came along.
In fact, getting back to kings and kingdoms again, they often had to raid the riches of their own noblemen to fund wars (the population often made too little for their taxes to be of much of any value). Kings hoped any plunder from those conquered might make up for what it all cost in the end. This system did not lead to a large economy compared to what can happen when more are allowed to prosper.
As usual, almost entirely on target. I am still uncomfortable with your willingness to embrace too much industrial policy. But your overall assessment of Argentina is spot on, as are your critiques of lefty critics of mainstream (what I call common sense) economics
When talking about redistribution, why are higher taxes on the wealthy never considered necessary? Inadequate revenue creates the need for austerity. Economists are too cavalier about people's basic needs. In 2024, except in central BA, signed of poverty were everywhere. It was tragic. People's savings were stolen by fiat.
Economic studies show taxes on rich could be much higher without affecting investment. Tax cuts for wealthy pull forward revenue from future, without increasing investment (see Trump Tax 2017).
Well keep watching NYC — if Mamdani puts in his millionaire tax, or the UK implements their proposed wealth tax and you’ll see if that results in more revenue and redistribution or instead wealthy taxpayers leaving for less hostile areas and less revenue.
Argentine here. Article is mostly spot on, but I have a few comments
-The conclusion that the starting point is important is accurate. People don't really understand just how over regulated, profligate, overprotected, and overtaxed the Argentine economy is. We are so far to the left that any market reforms would yield good results.
-If this is the case, then the more interesting question is why did neoliberal Macri fail in 2015-19 when libertarian Milei is succeeding? Both of them enacted market reforms but one failed completely and allowed peronism to win back the country.
-The answer is that Macri was not sufficiently aggressive in cutting the deficit. He only cut it by 1% in his first 2 years, then the bond market dried up and he went to the IMF for further funding, who finally forced him to cut the deficit in one fell swoop right before the elections. The recession lost him the reelection. Had he done it at first maybe Argentina would've been steadily growing by then.
-So why didn't Macri move faster? Because he came in as part of a coalition that included some leftists and couldn't get buy in, because temperamentally he's a consensus builder rather than someone imposing his vision, and because he was convinced that if he were to try to cut it all at once then the unions, peronists, and people in general would take to the streets and put him out of power like in the 2001 crisis.
-So why was Milei different? Milei arrived after inflation was in triple digits and poverty reached 44%, there was a broad demand for big changes. He also arrived as a minority government without allies, so he just forced his vision rather than appeasing anyone. He wasn't afraid of the street protests and was convinced eliminating the deficit was the only solution. In the end it kind of comes down to a difference in personality. He actually had fewer congressmen than Macri but was able to use the bully pulpit more effectively.
-So in the end the criticism that "he just did what the IMF has been saying we should do for forever" is accurate... BUT he was only able to do it because of his strong convictions. In fact some articles claim that the IMF thought Milei was going too far and wanted him to slow down. And importantly, he did it proactively rather than waiting to run out of money before asking for an IMF loan like everyone else.
-The stats on this page are a bit outdated. Latest inflation numbers are 1.5% per month and 34% poverty.
Anyways that's more than I meant to write. If you're still here thanks for coming to my TED Talk.
PS: Peron was democratically elected so calling him a "dictator" is inaccurate and would make quite a few Argentine lefties mad at Noah.
"The boring truth is that the ideal economy is a *mixed one*; it’s built on the foundation of markets, but also contains a significant amount of redistribution, public goods provision, and industrial policy. The exact optimal balance depends on the country, and on the times; even if you happen to get it exactly right for a while, the optimal mix will change over time as countries develop, as technology changes, as trading patterns shift, and so on."
This is exactly the conclusion I've reached over a lifetime of watching and experiencing ideological rigidity from both the Left and the Right crash and burn.
Right now, Job-like, I pin my hopes on a chastened Democratic Party getting out from under the thrall of unhinged Progressivism and identifying counter productive policy and addressing it legislatively.
I also agree with the conclusion but I'm a little troubled by the imbalanced evidence for it. There are lots of examples of disasters from too much state intervention. But what are our examples of disasters from too little state intervention? What's our case against the libertarians simply being right about economics?
The aggressive, rip-the-bandaide privatization of Russian state owned enterprises in the 1990s, in the absence of good institutions, created a generation of oligarchs rather than what anyone would call a good form of capitalism.
That's a good one. I'm sure libertarians will say that wasn't a "real" privatization - it was captured by oligarchs and a gangster state.
But I think that's what too little state power tends to look like - the gangsters take over.
I'm not sure there's any great evidence that free markets tend towards oligarchy. In most cases of monopoly, for example, it's largely down to regulatory or state/institutional capture, which is something the left (e.g. Lina Khan) recognise quite easily and readily.
Many of Argentina's problems were also caused by this.
Isn't the current administration, and the GOP in general, super-hostile to pretty much *any* form of regulation? Anything that impedes profit, like workplace safety, food inspection, etc.? The recent (extra-legal) elimination of the CFPB and eighteen Inspector-Generals being prime examples of such GOP-think.
And isn't such anti-regulationism (sp?) also a core part of Neo-Liberal thought?
No, I don't think so. I've certainly not seen any evidence in the last decade that Trump's Republican party is anti-regulation.
Monopiles are natural free market avenues to achieving the same levels of control and power, there are also other ways of getting there. Free markets do not assure freedom from this, that is the role of law and regulations. Free markets do not work well independent of good rules of the road.
Not so much rip-the-bandaide as badly organised and naively executed.
Although given Russia I am not sure that there was any path that was going to work well.
They should have done what Poland did and prevented people with money from buying up the assets from the destitute.
Poland had overall better "experience capital" and some modest degree of real governance.
Like Czechoslovakia, etc.
Russia has been operating with a social capital deficit all the way back to the Czars - and for better or worse hasn't really had any sustained governance to build its way out of its own handicap. (Contrast China, PRC which for all its flaws at some level did address major forms of social capital deficits)
Ehhh, to be fair to them I don't think that says much about laissez-faire economics. It says a lot more about the existing corrupt oligarchy that already existed in Russia, and the way that transitioning that rapidly from one to the other enabled them to reproduce their oligarchy under a supposedly freer economy. I see that more as a marker of just how bad things were under the Soviets than a mark against free markets, though it's a helpful cautionary tale about paying attention to the national details and circumstances.
At the time, economic advisors under the spell of the market urged privatization as rapidly as possible under the theory that all that mattered was freeing private sources and that the “shock therapy” would root out structural problems. It was only in retrospect that this was seen as exacerbating problems. If you were a reader of the Economist back then, you got the impression markets had magic powers.
Agreed - the hidden truths of the New Class in the Soviet system was that its real operations were essentialy this, except massively less efficient, more wasteful and even more corrupt.
Russia never having had any cultural base for good governance unlike say a Czechoslovakia or even a Poland (comparatively speaking) was (and is) and such a negative path-dependency route that
But absolutely on your last sentance - national details, circumstances, fundamentals of the "cultural capital" available are critical and can't just be assumed (or hand waived away on critiicsms like racism or cultural chauvinism - not of course that any Russian or African or whatever is genetically handicapped, but as US proggy Left is learning, one doesn't create Soviet New Man overnight)
Another good example is the so-called “Kansas Experiment” (Look it up.)
Maybe you could point to a he repeated boom-bust cycles, corruption and inequality in the US at the end of the 19th century up until the Great Depression
Right, though we didn’t have modern monetary policy then. JP Morgan basically did what the Fed does now.
Just off the top of my head...the Camp Mystic disaster. The regulatory failure that permitted the camp to be built on river flood plain in the first place and the failure of a functional warning/alert apparatus to deploy during the inevitable catastrophic flooding.
Most human development in history has occurred along floodplains and coasts, except when mountaintop redoubts were preferred for protection from marauders.
The warning system worked, but people, especially management, were not listening. This is a colossal failure of management, in my view, to have riverfront cabins in a high risk (though infrequent) flood area and not be especially alert and impose contingency planning when rain and floods are in the forecast.
Unfortunately, you can’t regulate away human error, even in states with more intrusive (eg Nixle) disaster alerts and more restrictive and costly land use regulations (like California).
*No man ever steps in the same river twice*
The flaw in your reasoning is that we now have *evidence* of climate change induced rainbombs occurring with greater intensity and frequency. On this basis, regulatory review of a children's camp in a region noted for historical flash flooding seems like a no brainer to me. However, if there's an ideological rejection of climate change science a good faith assessment of changed conditions is precluded.
No?
I didn’t mention climate change at all- why respond off topic to my comment rather than just posting a new comment? I suppose to a man with a hammer, everything looks like a nail.
I agree, though, that what we need are top down solutions from wise commisars to address the current existential and immediate climate disaster you believe in.
There should be no new development, no further bank loans and no further insurance (nor renewals) allowed in any area within 10 miles of the sea coast or in a 100 year flood plain. New bank loans and development only permitted in temperate areas with very low combined heating and cooling degree days and prohibited in high latitudes due to dark winters. Increasing. population density in the least energy- intensive locations and removing human inhabitants from dangerous seaside locales (NY, Boston, SF, Seattle) as well as zones with high earthquake and fire risk and little rainfall (LA) would be key. Anyone who disagrees is a denier of our immediate crisis
Depopulated northern latitudes will be the location for nuke plants and carbon sinks (arboreal forests where Canada. Scotland and Scandinavia once existed and reversion of Chicago and Minneapolis to a Great Plains ecosystem)
Are you on board, commissar? Or is re-education in order?
You mustn't have heard, risk management is a Thing. Insurance actuarials constantly reassess and price risk for all manner of things. Their working credo reflecting John Maynard Keynes (alleged quip), "When the facts change, I change my mind. What do you do, sir?".
There has been a marked decrease in precipitation in that part of Texas, and that river frequently floods, so those blaming climate change are missing the boat completely.
https://www.ncei.noaa.gov/access/monitoring/climate-at-a-glance/divisional/time-series/4106/pcp/1/7/1895-2025?filter=true&filterType=loess
Interesting data thanks, but respectfully, they document a change in rainfall patterns. Thus post hoc ergo proper hoc, they do not document a decreased likelihood of a stochastic rainbomb weather event made more likely from the moisture laden air rolling in from a climate change heated Gulf of Mexico.
Vikings grew Barley in Greenland in 1100. No ICE vehicles then, but a lot more horses worldwide producing methane. Discuss.
CA only updated its alert system after people burned to death as a result of regulator/politician and utility-caused fires in 2017.
That's an issue of public works. It's not really related to the type of government intervention in markets being discussed here.
The repeated financial crises of the 19th century?
Most failed states or similar scenarios are pretty libertarian. They don't crash in the same way countries that veer too far left do, since there's little to lose in the first place. Nevertheless, I feel confident no one is going to look at Somalia or Afghanistan as a role model.
What disasters?
Back then they were called Panics and were pretty much all caused by excess debt, economic contraction from one thing or another and absolutely no Federal level monetary policy to deal with it because idiots like Andrew Jackson shut down the Second Bank of the US due to a tiff with Nicholas Biddle.
A Panic started about 1837 followed by little to no recovery pretty much until gold was discovered in CA in 1949. There were plenty more Panics from the 1870s into the 20th Century, 1907 I think, until we finally established the Federal Reserve. It was pretty bad stuff.
Exactly, I've always felt it's an insane response to look at problems of the day and have your only go-to move be to open up the big book of socialism/capitalism/whateverism and rule by that alone.
Amen, brother.
I would like to highlight Sweden as a prime example of how market economy friendly reforms (especially since the banking crisis induced depression in the early 1990s) have boosted growth in a open market economy with welfare state elements and also impressively increased the number of billionaires per capita while still maintaining a fairly well-functioning social safety net (at least as viewed from a distance of a couple of hundred miles across the bay).
That's true! I should write a post about this specifically!
yes, it would be quite useful
People often miss how the Scandinavian countries actually work. Even if you just go by the Heritage Foundation Freedom Index, whom you'd think would be biased against them, they're actually up there at the top. Their economies are really allowed to run quite freely. It's just that the taxes extracted are quite high across the board to pay for the social services. But the lesson Norway in particular learned was that it was only through competitive free markets that you can generate the economic growth and revenue to sustain the social support systems people want.
Notably labor market freedom / flexibility (to compare with southern Europe and France.
But let's not forget how Sweden essentially nationalized their collapsing banking sector in the 1990s! https://cepr.org/voxeu/columns/swedish-model-resolving-banking-crisis-1991-93-it-useful-today#:~:text=The%20Swedish%20banking%20crisis%20was,the%20following%20seven%20key%20features.
Unlike what the US did in 2008
I'm skeptical of how "free market" the Scandinavian countries really are. For one thing, state-owned enterprises comprise a larger share of national employment than in other countries, and a significantly higher share of national wealth is collectively owned by the state-owned sovereign wealth fund. That these state-owned enterprises are run efficiently doesn't necessarily make them capitalistic (unless we argue that capitalism = economic efficiency, which is begging the question). For another, most of them have extremely high rates of union density (somewhere in the range of 50-70% of total employment). The "free running" in Nordic countries is more accurately described as corporatism, where organized interests (in this case labor and capital, with the state as a referee) bargain collectively on a national scale. I don't know about you, but if 70% union density and centralized wage bargaining is a characteristic of "free markets" then the term pretty much loses much of its original connotation (minimal state involvement and purely-individualistic market processes).
Apart from the Norwegian oil fund (which is an ingenious solution to avoiding govt bloat and mitigating resource curse) there are no significant Sovereign Wealth Funds in the Nordics. The state does own majority stakes in listed companies that are deemed as critical infrastructure (base power generation, Finnish airline - but no airlines in other Nordic countries) but those are very much operated on market economy principles, which the EU state aid rules also require. Unionisation has less practical significance in open export oriented economies where global competitiveness is a factor. Apart from Norway (where economy is boosted by oil), wage levels are quite modest compared to Central Europe, let alone the US. Number of hours worked in unionised parts of the labour market (ie most of it) tends to be significantly lower than in the US, though, probably dragging down productivity per worker in many fields when compared to the US.
..but out NYC Dem Primary winner says that Billionaires should not exist!
This is among the things I dislike about American leftism. We are always compared to European countries, but only when the European country is more left on some issue. This leads to a very false picture of the US as a deeply right-wing country. There are many areas in which US policy is more "left", but we never hear about these from the usual suspects.
* US spends more on public K-12 education than most European countries
* US tax code is more progressive than European countries. Taxes on high earners tend to be quite similar (don't forget about FICA and SALT!), while it is the tax rates applying to median incomes where the US rates are much lower.
* US taxes citizens on all their global income, while European countries only tax citizens on their domestic income. Thus, Europeans can opt out of their tax code by moving, while Americans cannot.
* Programs like Medicare and Medicaid have a high cost per beneficiary compared to many other country's healthcare programs. The relative "stinginess" of the other programs is never considered.
* The minimum hourly wage is below $16 in all European countries. Finland, Sweden, and Denmark do not even have minimum wages (wage floors are set by sectoral bargaining, but there is no national wage floor). Several US states have minimum wages above 16%, and some cities like Seattle ($20.76) and San Francisco ($19.18) are far higher than any European min wage.
I could go on, but I think this list is adequate to make the point that the US is not strictly more right-wing, economically, than Europe. Europeans, on average, receive more benefits from government, but they are far less fixated on having only rich people pay for those benefits. If we are stingy towards poor people, this is mainly the fault of our stingy masses, that pay essentially nothing from their ample incomes to help others, while the rich pay for essentially all support of the poor. The middle does not even cover the cost of their own benefits. In other words, it's exactly the opposite of the lefty media narrative.
There is quite a lot of naive or deliberate cherry picking (and from different models) and a huge amount of idealisation.
Yeah, but those welfare state entitlements were never designed to support the large percentage of recent immigrant population that live off the. They apparently have a big violence problem, as well. Police no-go zones, that sort of thing.
Yes, which is why both Denmark and Sweden are now coming down *hard* on immigration, because it's destroying their countries. It might be too late for either country to survive what they invited, but they're at least trying to reverse the problem. Both are dabbling in remigration policies, which i think over the next five years we'll see become totally mainstream policies across Europe including the UK.
They are not "destroying" their countreis for God'sake nor are the countries at risk, this is compelte xenophobic nonsense and frankly racism.
Now the ghettos and integration and (tiny really geographically) no go zones are a real and legit failure of extremely naive and magical thinking driven immigratoin policies and integration policies - legit and not nice urban problems.
But they are not except to irrational and innumerate xenophobes in any way "threat to survival" of the nations except to irrational racists.
"It might be too late for either country to survive what they invited"
This is generally true of all of Western Europe. Germany, France, UK, Netherlands (extra f'd). Well, nothing lasts forever ...
And this is also racist xenophobic nonesense -innumerate illiteracy that has no basis in real numbers. Rather a revival of the kind of nasty nonsense once written about the Eastern Jews flowing into W. europe in the 20th century with all the same foundations including in magical thinking innumeracy.
Concentrated serious urban roblems and fundamentally stupid immigration integration concepts driven by Lefty magical thinking, absolutely yes but none of the countries are at risk of any survival any more than they were from Eastern Jews or from Gypsies or other visibile minorities.
Totally unscientific opinion, but rural Sweden felt very recognizable to me when I visited there in January. Like the Midwest without a Trump obsession.
1) Great Article Noah, Especially on your point that "The more complicated, nuanced truth is that which economic policies are best depends a whole lot on where you start. "
Beyond it being country specific, its also industry specific as well. I would also make the point that it’s not just where you start — but also how and when you liberalize that shapes the outcome. Maybe for Argentina, it was so backwards that just any liberalization at any time was good, but for most countries when matters.
2) You are 100% right on India. India used to be a tightly controlled, inward-looking economy that required a license for any business activity. India borrowed a lot just for sluggish growth. When the Soviet Union died and the rupee-ruble clearing system collapsed, India was no longer shielded with the USSR's subsidized oil, and India was in a balance of payments crisis. It was only after they went to the IMF and removed parts of their license Raj, privatized state owned firms, devalued the rupee, and allowed more fdi is when they got to growth.
I wrote about it here (including their gold deals): https://yawboadu.substack.com/p/indias-comeback-story-gold-crisis
Honestly, India may need another round of liberalization, they still have too many distortionary subsidies and price controls.
3) Even with China, you are correct that its liberalization helped post-Mao. But I think China tells a different story. Yes, China took a (non-policy conditional) IMF loan post-Mao, but it did its liberalization on its own time table, which shows that sequencing is also an important aspect of liberalization. There were aspects that the IMF suggested that China should do in the 1980s that it didn't do until the 2000s. The 1980s were largely dissolving farming communes, allowing a dual track pricing system, making state owned enterprises, special economic zones, and reforming SOEs. But in the 2000s, it was largely about privatization as you said. I wonder what would have changed if China privatized first or allowed free pricing first instead of reforming SOEs and dual track pricing?
https://yawboadu.substack.com/p/how-deng-xiaoping-of-china-outsmarted
4) Sadly, going too hard on liberalization can also turn to shit. The privatization drive from the USSR to the Russian Federation had a lot of issues from debt default and oligarchy from a few crooks buying all the vouchers. Russia basically didn't recover until the 2000's China commodity boom fueled supercycle.
I also wrote about that here:
https://yawboadu.substack.com/p/from-communism-to-oligarchy-how-russias
I bring this up because it's not just where you start, but also HOW and WHEN liberalization is implemented can make a big difference.
Agred, Noah has nicely put a finger on "point of departure" and exactly right on country specfiic and industry specific (the Indian example of the Liscence Raj as it was sourly named by smart observers.
The failure of the Tunisian revolution failed very much on the Kingdom of Liscencings that Ben Ali put in place as rent extraction means - and they still have not fixed sadly
One trick is to keep the micro and macro laterization in sync. Micro liberalization to move resources from less to more productive use should not produce unemployment of resources.
My leftist friends are literally incapable of seeing less regulation as helpful or productive. It’s a disease.
"The boring truth is that the ideal economy is a mixed one; it’s built on the foundation of markets, but also contains a significant amount of redistribution, public goods provision, and industrial policy."
That's utter crap. The optimal amount of redistribution and industrial policy, from a purely economic perspective, is exactly zero. The optimal amount for a better *society* overall is not zero, but that's not the same thing. Don't confuse improving society with improving the economy (or vice versa!).
I put it to you that a society with zero redistribution would soon resemble Somalia circa 1993, which isn’t exactly economically optimal.
Before the new deal, we had basically zero redistribution in the US.
we were not Somalia
Ok, but how many present-day Americans would prefer to live in America in the 1920s? Assuming you weren’t one of the Astors or Rockefellers or other rich people, you’d be busting your ass working in a steel mill or mine for a pittance by today’s standards. And when you were too old to work and your family couldn’t afford to support you, or you had no family, say, you were a childless widow, you were shit outta luck.
Now we have a bit of a motte and baily argument. The original statement was that zero redistribution looks like 1993 Somalia.
My point is that that doesn't have to be true. It's quite possible to have a stable western society with zero retribution.
And I would argue there's a pretty wide range of societal outcomes possible independent of the level of redistribution that really depend on the rule of law.
And from an economic perspective do just fine.
I agree that most people prefer a safety net. IE that sacrifice pure economic efficiency for other values. And that's fine. But those tradeoffs do exist.
I like that you're clearly much more conservative than I am, but you always respond to my comments substantively and respectfully without calling me a dumbass lib or something, so thank you for that.
I don't have much time now, but my main points are:
-tradeoffs exist, of course they do, unless you're in such a shitty situation that literally anything you do would be an improvement.
-"It's quite possible to have a stable western society with zero retribution." I mean, sure, but is that our goal? Do we care about *stable* or *good for most of the people living in it*? The Antebellum South was *stable* until they were stupid enough to secede and get into a war with the industrialized North; doesn't mean their society wasn't a nightmare for all the slaves. (I was going to bring up the Roman Empire as an example of a stable western society, but then I remembered that they famously handed out bread and entertainment to the masses, so this example doesn't work!)
Hell, if all you care about is "stable," you can't do much better than North Korea: no coups, no uprisings, no drastic changes to their economic system over multiple decades, the Kim dynasty just keeps on trucking! Presumably not the ideal you wish to aspire to.
Thanks for the kind words, and agreed. I think it's not only possible, but necessary to have good faith respectful disagreements about policy. I recall many enjoyable conversations with my extremely smart Grandmother who was a good bit more liberal than I am.
I like to believe we were both better off for being challenged with good faith debate.
Regarding distribution I my optimal society does have have a government safety net. Though we probably disagree about the size. In particular I'm just very concerned about the amount of spend we have, and am not willing (or able) to pay a whole bunch more in taxes.
And would like more strings attached when we do. Basically if you are going to get government help you'd better be doing your part to live right.
Approximately zero, but I think that has a lot more to do with the level of technology and economic development than the lack of redistributive economic policy.
No, in principle "industrial policy" is to improve the economy. Of course we never know what the alternative would have been but S. Korea style "develop a bunch of internationally competitive export industries" kind seems to have worked well. My guess is that while aiming for exports does not guarantee, success, it can avoid the most costly failures like US protection of EV automobiles.
"Redistribution" by definition is not about improving average incomes, but if done with progressive consumption taxes, need not be an impediment to growth.
The government picking economic winners and losers does not have a good theoretical basis or a good track record in practice, even if there's a few circumstances where it worked out OK, such as South Korea. And that argument holds even less water for developed nations. The only justification for industrial policy for the US now is for national security reasons (e.g., developing a domestic drone industry, manufacturing critical drugs domestically, etc.). And even then, the only real justification is to get critical industries away from competitors and torwards allies--it doesn't actually need to be domestic in order to shift it away from China.
But if an industry is worth “strategic” investment it should be done to be an exporter, too. Yes the strategic effort should be to shift more of the world’s manufacturing capacity outside China
“shat the alternative”
Hey Thomas, you might wanna use the edit button, unless that was a pun that went over my head 😊
My fingers often over estimate my readers. :)
“In stead of picking one ideology and sticking to it, countries should recognize when they’ve veered too far in one direction, and take steps to change course.”
Yes. This is essentially how everyone should approach all ideology
Yes, from Wikipedia...here's an early critic of ideological rigidity.
*The central ideas of Heraclitus's philosophy are the unity of opposites and the concept of change. Heraclitus saw harmony and justice in strife. He viewed the world as constantly in flux, always "becoming" but never "being". He expressed this in sayings like "Everything flows" (Greek: πάντα ῥεῖ, panta rhei) and "No man ever steps in the same river twice". This insistence upon change contrasts with that of the ancient philosopher Parmenides, who believed in a reality of static "being".*
Or, as I would describe it, successful governing requires "principled flexibility". In this regard we are more or less currently without government, lurching from DJT's one ignorant, prejudiced impulse to another.
And the way political parties approach it is to listen to donors and activists!
Noah you know my disdain for industrial policy, especially when it comes from a megalomaniacal moronic narcissist. Never would I have imagined that one our Parties would be so captured by a cult of personality that they would believe a failed casino owner, part time porn actor would be right person to forcebly lead our economic well being.
It is incomprehensible that Congress doesn’t debate the wisdom of Trump’s declared emergency that is forcing a global trade war. The idea that one person is attempting to forcibly compel Apple to assemble its iPhones in America, which would ultimately cost $3,000 each, is an acceptable industrial policy. It is astounding.
Yet here we have Melei fixing the Argentinian economy, which was a basket case. The Argentinian fiscal and monetary situation was an emergency. America is not in a similar situation. Take the copper tariffs Trump wants.
A 50% tariff on copper is supposed to do what? Create more open-pit mining? Not with NEPA.
Not as long as you have an entire environmental lawsuit industry. We don’t process rare earths because it is environmentally filthy. We no longer have a viable lumber industry that meets our needs due to the prevalence of legal lawsuits.
The question becomes whose industrial policy? Who gets to decide what is a critical industry that should have the hammer of the federal government? I do not in the least disagree that some products should not be in the hands of our enemies. My second job as a paramedic during COVID, I didn’t have enough PPE, I had to reuse N95 masks. China is our competitor and would be an enemy.
I don’t want Bernie Sanders creating my industrial policy any more than the ignorant Trump. As for free markets, politicians are ill-equipped to determine winners and losers in a market.
Yet another ridiculous Trump tariff.
The Rosemont Copper mine in the Santa Rita mountains south of Tucson has been in development for two decades, being held up by environmentalists (for jaguar habitat, runoff and supposed native cultural sites ). It was unblocked by Trump in 2017 but then a court stopped it again on an old EIS in 2019 and affirmed by the appellate courts in 2022. Still no copper, the tariffs won’t help, probably their biggest impact will be higher demand and prices attracting on the sleazebag copper thiefs coming back again and destroying street lighting and air conditioning to get contraband to sell.
You are dead on and proved my point. Hadn’t heard about that mine...It is almost impossible to do large scale mining of the sort he is thinking about.
Yes, free markets work well, but do work perfectly on their own, nor do they work well for everything or without intervention, contrary to libertarian claims and their promotion of a laissez-faire version of capitalism.
Free Markets assume three things will be present to determine price and help to effectively distribute resources in an economy and those three things are supply, demand, and choice.
It is assumed in this system that the buyer or seller can choose not to buy or sell at a certain price and that they can choose an alternative instead if terms are not agreeable to either party.
This is meant to keep prices in check.
However, too often those promoting free markets forget that choice is a key component.
Free markets can break down as an effective system when barriers to choice emerge, like when there are serious shortages of necessities needed for survival or monopolies that impact choice.
An example of when it does not work as it should, all by itself, occurs for things like healthcare where one can not choose a dollar shore medical care alternative for cancer or they could die. Typically, there are only one or two good choices for survival and thus no real choice. The free market does not always work very well for equitable distribution of healthcare.
Another example where it fails is in setting a bottom price for labor.
If wages are too low, workers can't afford to take time to look for other work or gain added skills because they are forced to work almost 24/7 to survive. There also may not be other employers in their area, so they have no choice but to sell their labor at what an employer is offering. No choice.
Thus, min wages and labor laws are essential.
Monopolies can also easily form in free markets if not prohibited. They remove the choice to find an alternative and remove competition.
Fraud or deception can remove choice, as well as one can't make an informed opinion or choice under fraudulent conditions.
Shortages of necessities for survival like housing can also reduce choice due to a lack of alternatives.
Thus, free markets work well when there are laws in place to remove barriers, but they also do not work well for absolutely everything as I have mentioned, like for setting a bottom price for labor or healthcare.
The trick is to determine and remove barriers and to provide other options where it does not work well.
It is a system that is dependent on good rules for the road and laws - and does not work in the way that many Libertarians assume.
They assume that if all laws were removed that it would work well all by itself and that is simply not the case - quite the opposite. In other words Reagan was wrong because often government intervention is not the problem, instead it can often be the solution and is needed and is essential for the system to work well, but the laws have to be effective and be able achieve their intended purpose. Sure at times this might not be the case and changes need to be made to existing laws, but his overall his statement was false. Laws and rules and regulations help the system function.
We have already been there and done that with pure laissez-faire capitalism in the earlier days of the Industrial Revolution and it was down right awful, with masses living in squalor working in unsafe conditions for dirt poor wages with no way out. Manufacturing and mining used to be the worst jobs, prior to unions and labor laws, unlike today. The wealthy few controlled most everything (including politics - Robber Barons) leaving little choice and certainly no large middle class, which did not occur until labor laws and min wages and unions came into place and monopolies were broken apart.
With better rules in place, our economy did very well and more people enjoyed a better quality of life, as well.
I agree that both sides politically need to be able to see the positives and the limitations of our economic system so that they can help to write better laws to guide our economy and promote quality of life.
agreed that monopolies can be a problem. Which is why even most libertarians and really free market economists agree that there is a roll of governments to prevent monopoly. Free markets require competition.
However, markets are the perfect antidote to supply problems. Lack of supply, means prices rise. high prices leads to high profits, high profits means more companies enter the market, increase supply and prices comes down.
As the saying goes, the cure for high prices is high prices, and the cure for low prices is low prices. Then a market with competition will self correct.
A great example, is after a natural disaster. Really high prices mean that it's profitable for people from out of the area to rush in and bring needed goods to the area. Price gouging rules actually hurt the people they are trying to protect because there's no extra profit encouraging people to rush goods into an area. Only the altruists will bother.
Same applies to labor. Minimum wages, are like rent control, they artificially control the price of something. Thus interfering with the market. If you raise the price higher than the value of something then the demand for it goes down. So people will substitute capital for labor. Or if they can't then they will just raise the prices of the goods. So now you have a higher wage but it didn't accomplish anything because now the goods you have to buy cost more.
The only time it won't do that is if the demand for that labor (at the given wage) is above the artificial price control.
Actually economists just got a Nobel for work in real life settings showing that rising the minimum wage did not reduce jobs or businesses in areas that did this when compared to areas near by. In fact, more businesses moved into these areas to take advantage of the increased spending power of more people in the area from higher wages and the sale of durable goods also increased.
When wages rise, so does demand for products, and thus more workers are often needed.
In addition, employers never hire more people than they need and are not in the habit of throwing away money. Thus, when min wages rise employment tends to not decline and since min wage is not all there is to the cost of sales it only represents a small fraction of the cost since there are other factors like overhead and materials, etc. Price elasticity also impacts if prices can change as well.
History already shows that not having a min wage simply does not work. Labor is not that mobile and if one is working endless hours due to low wages they can't afford to take time off to seek other jobs or skills. Thus, they then can't choose to go elsewhere.
It's very possible to use statistics to twist numbers to say almost anything.
But we know that if the value of labor is X, and we raise the cost of labor to X + 1, then there is a huge problem.
Maybe the job doesn't get done, or maybe it gets automated away, or maybe the business just raises prices and hopes to pass it on the customers, or maybe the business closes it's doors if it can't afford to stay open.
But there is no free lunch.
We already know how people lived in the early days of the Industrial Revolution. Unions caused the large middle class that formed post WWII and suddenly what was once a job for only the most desperate, like mining or manufacturing were desirable and provided middle class life styles.
So, are low wages and low taxes in 3rd world countries helping or hurting? It simply causes the country to stay 3rd world.
Interesting data on what the young urban rate of unemployment ( ie high school kids with summer jobs and very newest members of the workforce-the ones who need on the job training most of all) was before the minimum wage laws and after. It seems like those you want to help the most, wind up getting hurt the most. What sounds good, isn't what is truly effective.
You want to help high school kids more than a single head of a household ? Not me. I'd rather see a low skilled single mom get closer to a living wage than see full employment of kids looking for summer jobs.
Yes, there is also a false notion spread by the right that min wage jobs are largely held by teens, and this is not remotely the case.
No, not teens but low skilled workers. Where if you really wanted to help them you want them to turn into higher productivity workers. While I am not 'right wing' as you seem to be implying but rather a classical liberal, I'll point out that the left wants as many people as possible dependent on the largesse of the government. They want things that sound good and ignore the evidence of whether it is working or not. Because it makes them feel virtuous. And in charge.
Until more recently were manufacturing or mining jobs high skilled?
Did you approve of their high pay?
If someone is low income and thus having to work 2 or 3 jobs how will they find time to get more skills?
Also, your notion of the left wanting more to be dependent on government is 100% false.
The ones who want wages to be subsidized by the government are businesses who want to keep min wages low. If the min wages were higher, there would be fewer who qualify for means tested programs like Medicaid and Food Stamps.
Raising the min wage would reduce "largesse"
It is not about feeling "virtuous" either, but doing the right thing is actually good for the economy. The entire economy grows with demand when people have enough to live on and even the rich get richer as well even with a higher tax rate.
No such thing as a living wages. Wages are only worth what you can get someone to pay you for your labor.
You raise the price demand goes down. You raise the price to high, and it goes away.
This is econ 101.
And not every job is going to be suitable to support a family on. For example, when I got out of the army, I started work as a busboy. Yep, that's not a job to raise a family on. That's a just getting started job.
Sorry I was rude earlier
Yes there is… “A living wage is the minimum income required for a worker to meet their basic needs and maintain a decent standard of living in a specific location.”
You seem to believe that markest won’t be manipulated. They will always be manipulated.
First of all econ 101 does not teach that.
These topics would largely be covered in macroeconomics or productions and operations management and not econ 101 anyway.
In addition, labor is not all that goes into the cost of sales. How much a price goes up or down is also dependent on price elasticity (look up the term).
Example:
Say I make 100 coffee cups a day at 1 dollar each in cost and sell them for 2 dollars. I make a dollar each in profit.
Overhead cost is 60 cents per cup and materials are 20 cents per cup and labor is 20 cents per cup.
10 cents out of 20 cents is for min wage employees per cup. If they get a 20% raise that is 12 cents per cup.
My costs are now 1 dollar and 2 cents per cup and I sell them for 2 dollars.
Can I pass along the 2 cents per cup and raise my price? Probably not a problem, but I might want to find other savings instead or eat the 2 cents if I have a lot of competition. If not a lot of competition, I might raise the price 2 cents and it would not impact sales volume.
The idea that its a big problem or would have a huge impact if we raise min wages (that would impacting something like less than 10% of the entire workforce) is simply false. It could also be done gradually to give employers a chance to adapt.
Min wages are typically not a huge chunk of the cost of goods and services (it depends) since other costs of other types also exist as well in the product, not just labor.
If I pay someone an extra dollar, or a 20% raise my costs per item do not go up a dollar or 20%.
Note when I said
" Wages are only worth what you can get someone to pay you for your labor.
You raise the price demand goes down. You raise the price to high, and it goes away.
"
I was talking about the cost of labor as a price, not the price of the finished good or service.
My point is that the way supply, and demand for labor works is the same as it works for other goods or services.
You raise price demand drops, but supply increases.
"First of all econ 101 does not teach that.
These topics would largely be covered in macroeconomics or productions and operations management and not econ 101 anyway."
I will will grant that my econ degree was 20+ years ago, so maybe you are correct on that. It seems like pretty basic supply and demand stuff to me.
The principle remains the same for the single mom. You are missing the bigger point which is that these are not static groups. The way to learn skills and advance requires the ability to get into the work force and learn how to be successful. The jobs where the pay is above productivity will be replaced by automation.
One, Even with the skills we can’t all get skilled jobs that provide a living wage. There is not enough demand. Two, many people are not capable.
You are saying increasing minimum wage means less jobs? It’s not that simple. That would happen if employment was a perfect market..the kind that can only exist in the abstract. In the real world there is no definitive evidence that increased minimum wages drives up unemployment.
Really? I'd like to see that data.
Look at Professor Sowell's research: Pre-Minimum Wage Era: He points to periods like the 1940s and early 1950s, before the federal minimum wage (established in 1938 under the Fair Labor Standards Act) was significantly enforced or raised. In 1948, black teenage unemployment was around 9.4%, close to white teenage unemployment at 10.2%, per Bureau of Labor Statistics (BLS) data.
Post-Minimum Wage Increases: After significant minimum wage hikes, such as in the 1950s and 1960s, black youth unemployment rose. For example, by the 1970s, black teenage unemployment reached 30–40%, while white teenage unemployment remained lower, around 15–20%.
Studies like those by economists David Neumark and William Wascher (e.g., Minimum Wages, 2008) support Sowell’s view, finding that a 10% increase in the minimum wage reduces employment among teenagers by about 1–3%, with stronger effects on low-skilled groups like black youth. The logic is simple: if a worker’s productivity is below the minimum wage, employers may not hire them, especially in roles with thin profit margins (e.g., retail, fast food).
Economists just won a Nobel for showing that raising in min wage did not cause a loss of employment and in fact there was an increase in businesses moving in to these areas, not out. This was based on real world data and not models. Thus, perhaps there is a correlation vs causation issue in the research you are suggesting I read with other things going on in society. If total min wage jobs do not decline with wage increases, why is it declining for youth?
Since I have a degree in business and economics and have had statistics for research, I will look to see if Neumark and Mascher are engaging in assuming more than what the data shows or if there is something there.
I don’t think PipandJoe understands libertarianism, he says that they want “all laws removed” which is actually anarchy. At least they didn’t compare libertarianism to warlord controlled Somalia.
I am referring to libertarianism where they assume that free markets work well without any regulations and this is simply not the case.
Also, one needs to remember that not all persons can participate in the process so we need safety net programs like food stamps and Medicaid as well as SS, Medicare, etc.
Too often, the GOP forget (or seem unaware) that all of this money used to help the poor ends up simply going right back into the economy when spent and is then fuel for businesses, as well. Those at the bottom spend every penny.
It even eventually ends up as corporate profits and income for wealthier persons as well, as it is spent and moves throughout the economy which expands as a result. Everyone ends up better off when the government plays Robin Hood in an efficient manner. Even if the wealthy may pay more in taxes with this system, they also make a lot more money with it, as well.
On a macroeconomic level, the system, is circular and continuous and the point is to keep the wheel spinning and providing jobs and opportunities and quality of life for as many as possible.
It is not remotely like a pocketbook or business balance sheet analogy which only have a single point of reference and are not circular and continuous. The governments role in the economy is not like a business model it is part of the larger system and what it does impacts all of it on a larger and more circular level. GOP cuts often do damage to GDP growth.
Let's look at a really simple example.
I pay $100 in taxes. The government takes their cut for administration (say $10) and then pays that out as say welfare of $90.
Now that person comes and spends their whole $90 to buy one of my widgets. After COGS and costs of running the business I probably end up with about $5 in net income.
So I paid $100 in taxes, and got $5 back in profit.
From a strictly economic perspective I certainly am NOT better off.
An economy is not zero sum and can expand and contract.
If it did not, we would never have recessions and depressions, etc.
Think about it. When we have a depression is there suddenly less of something, or less money, or did some aspect of the system break down causing a domino effect?
If a company closes down in a small town, the economic impact is far greater than just the dollar amount from those paychecks because those paychecks were spent in businesses in the area and each time the dollar changed hands, it generated economic activity, and jobs, etc. Each time those dollars had changed hands they had generated economic activity beyond that initial paycheck expanding the economy of the area, so when those paychecks are gone the economic losses are greater than they paychecks, as well.
When you look at an economy as a whole, you look at how much economic activity is taking place. The more there is the more jobs can be supported, etc. and in turn these jobs fuel more demand and the whole economy can expand.
One analogy might be a fountain with a pump and the size of the economy is represented on how many times 100 gallons of water can flow though the system in a year. This total flow is GDP or the size of the economy.
If the water level at the bottom is too low, so that part of the pump intake can't function, this will slow the number of gallons of water that cycles. Low water may be like the poor not having enough to spend or not enough jobs etc.
If the water is high enough to cover the intake, it will operate efficiently and maximize flow rate.
People at the bottom of the income scale and their ability to spend and participate in the economy is like the level of water in the fountain. When they spend and they spend every single penny, their spending flows into businesses, perhaps the 2nd tier of the fountain. These folks and businesses in tier 2 also spend and the more they make the more they spend this then allows the pump in tear 2 to operate efficiently. They also create jobs if demand or flow from the bottom of the fountain is good and these jobs lead to more water of income also filling the bottom level. They spend and invest and the money flows into tier 3, etc. incomes for the wealthy. When consumer confidence is high, the flow rate increases as people feel confident enough to spend.
If those in the bottom do not make enough to spend in the economy the pump does not work effectively. The ability for tier 2 to function also declines and thus tier 3.
There is a domino effect and the pump begins to run dry and the whole economy shrinks (cycles less often) and we get a recession and the more it shrinks the more the dominoes fall.
This can also happen when water that flows up to tiers 2 and 3 do not flow down again in the forms of jobs and growth etc. but instead are invested in already existing passive assets. When there is not any increasing demand from consumers at the bottom and middle, the wealthy and businesses have no incentive to expand even if they get tax cuts, and the fountain level can get or remain too low at the bottom.
The truth is that when benefits are cut for the poor, they have less to spend in the economy, and this means less money flows upward and it also all flows more slowly, as well. The entire economy shrinks and those at the top make less as well.
So that dollar not spent for the poor person, just like a factory closing, causes a far greater impact than just that one dollar throughout the entire system.
This is what is meant by the multiplier effect.
Helping the poor or those caught in recessions or areas of large factory closures is also referred to as "priming the pump" for the economy.
Those at the top benefit as well by a factor much larger than that initial dollar spent.
Each time a dollar is spent it can generate additional economic activity as one person's spending becomes another person's income and on and on and on, it is continuous.
The poor and lower middle class are "the many" and tend to spend every dime they can get on necessities. Those on each tier above tend to be fewer in number and spend less of a percentage and our economy is 70% based on consumer spending.
Because we are measuring economic activity, dollars on a maco-level are viewed as measurement tools that facilitate these transactions and are spent more than once in a given time frame as one persons spending then becomes another person's income. We do not count dollars in bank accounts as GDP we measure economic activity.
If an economy was zero sum we could simply measure dollars in accounts or the fountain water capacity, and not worry if there was any exchange or flow or not how many times it cycles or how quickly how much economic activity is being generated. Just measuring stagnant water or paper dollars just sitting there is meaningless.
Thus, your example is simply not related to how an economy works as a system.
Macroeconomics is interesting and when you learn about it you realize that it has nothing to do with a single point of reference but is about how it all works as a system. Pick up a book on the topic.
My analogy above is simply meant to be the "gist of it" and combines concepts like the multiplier effect with the velocity of money into a fountain analogy so it is just a rough conceptual example.
My wife and I spent the month of April and early May in Argentina. Based on my conversations and observations (all anecdotal, of course), most everyone except those used to feeding off the government trough (a large percentage of the population) is pleased with Milei, whereas the unions and government (or formally government) employees are not. Prices did not measurably change during the time were were there (I am told there were days in the recent past where they would change the store prices several times a day - imagine that). The USD-Peso exchange rate towards the end of our trip was not as good (for us) as it was in the beginning. Partly because the initial Trump tariff stuff was happening in early April and the USD lost value everywhere.
As for strikes, the public transportation unions decided to have a two day strike during our stay that messed up our plans for a week (no flights for a few days causes a BIG ripple effect). It was their third general striker since Milei was elected. I asked a few different people why they were striking, and the answer was "because they want to remind everyone who is in charge."
If you can read Spanish, I highly suggest following Federico Sturzenegger in X. What minister Sturzenegger has done under the patronage of Milei in the past year and a half is something that should be studied by every policymaker.
In his X account he describes every single de-regulatory move done by his ministry as well as the rest of Milei's administration. He does it in plain Spanish, sometimes with analogies to help the average person understand.
https://x.com/fedesturze
"If you can read Spanish, ..."
And even if you cannot, copy and paste into a translate app is easy enough. Chrome will translate web sites automatically, not sure if that is possible on X?
Good point. Yeah this account is a must follow no matter what language you can speak / read. Just use AI to translate his posts.
So much this. His best minister.
This is what DOGE should have been. Unfortunately Elon is a disruptor who thinks he can come in, fire half the employees and the problem is solved (seems to have worked for X).
Instead we got a Harvard professor who did the hard work of analyzing the problems, working with stakeholders on the solutions, and proposing effective ways to make this better. Very thankful for that.
A general conclusion I made a long time ago is that many free market initiatives will ultimately be successful at the price of initial disruptive and destabilizing effects. It’s often not a question of choosing the correct policy, but the political question of how much disruption and destabilization the populace is willing to accept. The conditions in Argentina gave Milei a lot of room to operate within. In the US in recent years, the expectations for stability and growth are sky high, and the political price for anything else is extreme.
My expectations for the US are that with Trump we will continue to get zero stability, and probably negative growth once the impact of tariffs and deportation of agricultural workers fully hit. I just hope this makes his supporters realize that he’s an ignoramus who doesn’t care about America or regular people.
I really feel like I need to point something out.
What are kingdoms and how did they emerge?
A kingdom is simply a land monopoly and one of the things that can eventually happen with a pure and unfettered hands-off survival of the fittest laissez-faire free market system.
People have been trading even before they settled into societies and agriculture and began to specialize in trades.
Thus, free markets evolved rather naturally, but what happens without any legal constraints is that they tend to lead to some form of monopoly as the most successful find ways to crowd out or eliminate all competition for their own advantage.
When agriculture and trade were the dominant means of wealth prior to industrialization, land and claiming new territories and trade routes were the means of wealth.
Eventually, gaining more wealth and overtaking your neighbors created kingdoms and later they justified full control with myth making like being ordained by God, etc as an excuse for having it all and to help quell rebellion.
They got their serfs and others to fight on their behalf based on this as well as keeping many of them subservient though poverty. They could then pay them or promise to reward them if they would fight. Those in the king's favor may get titles and gifts of land.
The point I am making is that totally uncontrolled free markets do not remain free, nor in the end do they lead to prosperity or a large middle class.
Anyone who has played the game of monopoly should realize this and also where the idea for the game actually comes from. There is also at the end a "game over" for most with one "winner."
"Game over" for most is not creating a good economy.
Unfettered and unregulated for too long, free markets tend to lead to a wealthy powerful few and often subjugation. We saw a lot of this occur in the days of the Industrial Revolution and the Robber Baron's as well, until the "trust busters" came along.
In fact, getting back to kings and kingdoms again, they often had to raid the riches of their own noblemen to fund wars (the population often made too little for their taxes to be of much of any value). Kings hoped any plunder from those conquered might make up for what it all cost in the end. This system did not lead to a large economy compared to what can happen when more are allowed to prosper.
As usual, almost entirely on target. I am still uncomfortable with your willingness to embrace too much industrial policy. But your overall assessment of Argentina is spot on, as are your critiques of lefty critics of mainstream (what I call common sense) economics
When talking about redistribution, why are higher taxes on the wealthy never considered necessary? Inadequate revenue creates the need for austerity. Economists are too cavalier about people's basic needs. In 2024, except in central BA, signed of poverty were everywhere. It was tragic. People's savings were stolen by fiat.
How do you know it’s “inadequate revenue” and not “untenable spending” that causes the need for austerity?
https://www.epi.org/publication/raising-income-taxes/
Economic studies show taxes on rich could be much higher without affecting investment. Tax cuts for wealthy pull forward revenue from future, without increasing investment (see Trump Tax 2017).
You’ve found the free lunch!
Well keep watching NYC — if Mamdani puts in his millionaire tax, or the UK implements their proposed wealth tax and you’ll see if that results in more revenue and redistribution or instead wealthy taxpayers leaving for less hostile areas and less revenue.
Oh Noyekh, I knew you’d come around! (*Noyekh is how you say Noah in Yiddish 😉)
Argentine here. Article is mostly spot on, but I have a few comments
-The conclusion that the starting point is important is accurate. People don't really understand just how over regulated, profligate, overprotected, and overtaxed the Argentine economy is. We are so far to the left that any market reforms would yield good results.
-If this is the case, then the more interesting question is why did neoliberal Macri fail in 2015-19 when libertarian Milei is succeeding? Both of them enacted market reforms but one failed completely and allowed peronism to win back the country.
-The answer is that Macri was not sufficiently aggressive in cutting the deficit. He only cut it by 1% in his first 2 years, then the bond market dried up and he went to the IMF for further funding, who finally forced him to cut the deficit in one fell swoop right before the elections. The recession lost him the reelection. Had he done it at first maybe Argentina would've been steadily growing by then.
-So why didn't Macri move faster? Because he came in as part of a coalition that included some leftists and couldn't get buy in, because temperamentally he's a consensus builder rather than someone imposing his vision, and because he was convinced that if he were to try to cut it all at once then the unions, peronists, and people in general would take to the streets and put him out of power like in the 2001 crisis.
-So why was Milei different? Milei arrived after inflation was in triple digits and poverty reached 44%, there was a broad demand for big changes. He also arrived as a minority government without allies, so he just forced his vision rather than appeasing anyone. He wasn't afraid of the street protests and was convinced eliminating the deficit was the only solution. In the end it kind of comes down to a difference in personality. He actually had fewer congressmen than Macri but was able to use the bully pulpit more effectively.
-So in the end the criticism that "he just did what the IMF has been saying we should do for forever" is accurate... BUT he was only able to do it because of his strong convictions. In fact some articles claim that the IMF thought Milei was going too far and wanted him to slow down. And importantly, he did it proactively rather than waiting to run out of money before asking for an IMF loan like everyone else.
-The stats on this page are a bit outdated. Latest inflation numbers are 1.5% per month and 34% poverty.
Anyways that's more than I meant to write. If you're still here thanks for coming to my TED Talk.
PS: Peron was democratically elected so calling him a "dictator" is inaccurate and would make quite a few Argentine lefties mad at Noah.