Thursday, March 22, 2018

Is the American middle class really no better off today than in 1979? Not according to the CBO

By James Pethokoukis of AEI.

Are most Americans really no better off now than they were decades ago? Have living standards gone nowhere? It is a claim some policy activists and policymakers make. But it is hard to square such claims with a new report from the nonpartisan Congressional Budget Office. Lots of cool data in there, but let’s focus on the broad middle class, the 21st to 80th income percentiles. How has it been doing since 1980?

One way is to look at “income before transfers and taxes” — or roughly market incomes plus social insurance benefits such as Social Security and Medicare — which was up 28%. So not zero, but not blazing fast growth. But, again, not zero or even close

Another approach is to look at “income after transfers and taxes” — market income plus social insurance benefits plus means-tested transfers (Medicaid, food stamps) minus federal taxes — which was up considerably more, 42%. Even more not zero! More impressive still: Incomes for the bottom fifth are up nearly 70%.

The “income after transfers and taxes” also does a lot to reduce inequality vs. “income before transfers and taxes” — as the following two charts show (breaking out the top 1%):

Wednesday, March 21, 2018

Sacrificing Safety Is an Unintended Consequence of the Jones Act

By Thomas Grennes. He is Emeritus Professor of Economics, North Carolina State University. 

"The Jones Act of 1920 requires, among other things, that cargo voyages between two American ports must use American-built ships. As the United States has lost its comparative advantage in ship-building, US ships have become more expensive, and the average age of ships in the Jones Act–eligible fleet has risen relative to the average age of foreign-flag ships. Older ships are less safe, and reforming the Jones Act is the key to increasing safety in US shipping.

Technological Change in Ships and Comparative Advantage

In its first session following the ratification of the US Constitution in 1789, Congress required a vessel to be American built to be eligible for US-flag registry. In the early days of the nation and through the Civil War, the domestic-build requirement had little effect on US shipping costs, since American shipbuilders had a comparative advantage in producing ships that had wooden hulls and were wind driven. US-flag ships carried most of the nation’s foreign trade before the Civil War, and they were highly desirable for use in the international export market.

As part of the Industrial Revolution, Great Britain began producing iron-hulled ships driven by steam that displaced the wooden, wind-driven ships. Ships equipped with the new technology quickly came to dominate most international sea lanes, relegating wooden sailing ships to a subordinate role. American ships became technologically backward. Further, the British repealed the domestic-build requirement of the Navigation Acts, but the US retained its requirement. By 1900 ships wearing a US flag were still 73 percent sail powered, but the British fleet was only 20 percent sail powered. The result was a long-term decline in the share of US trade carried by US-flag ships and a decline in the US-flag share of the world fleet.

The US Merchant Marine has been permanently damaged by the persistence of the American-build requirement. The United States is the only major country that retains a domestic-build requirement. “Although this clearly was not the intention [of the build requirement], the policy further accelerated the virtual elimination of U.S. shipping from all trade routes open to foreign competition.”

US shipbuilders lost their comparative advantage, and American-built ships became increasingly expensive relative to foreign-built ships. According to recent estimates, American-built oceangoing ships cost five times as much as their foreign counterparts. Because of the higher cost of new ships, American shippers have delayed replacing older ships, and the American fleet has gotten older. It is ironic that a law intended to strengthen the US Merchant Marine has contributed to its near disappearance.

Age and Technology

As technology advances, older ships have become more technologically backward. In principle, older ships could be serviced and refitted with the latest technology, but ship owners have avoided bringing older ships up to date because of the additional costs modernization would entail. Services of American shipyards are more expensive than foreign shipyards, and a 50 percent tariff on the use of foreign shipyards that was part of the infamous Smoot-Hawley tariff of 1933 remains in effect. Safety rules with grandfather clauses have made it possible for older ships to operate legitimately without adding modern technology.

For example, El Faro was delivered in 1975 and it was required to follow the safety requirements of 1960 when it sailed in 2015. Safety standards are lower for older ships, and there is evidence that enforcement of standards is also weaker. In the El Faro case, some work was not done before the ship left the port because “parts for older ships were hard to find.” The Coast Guard has been criticized for outsourcing some monitoring to the Alternate Compliance Program, which was judged to be ineffective. Regarding safety standards for older ships, an American ship captain stated recently that “what they have done over the last 20 years is lowering the bar. Their definition of seaworthy gets lower and lower because the ships are getting older and older.”

Are Older Ships Less Safe?

It is undeniable that the Jones Act contributes to the aging of the US-flag fleet. Is there evidence that older ships are also less safe? Marine insurance companies consider older ships to be riskier. Marine insurance is one of the oldest forms of insurance, and insurers have accumulated vast experience evaluating the safety of different types of ships. The importance of age varies with the type of ship, but marine insurers are reluctant to insure ships older than 20 years without extraordinary inspections or higher premiums.

A group at Southampton Solent University conducted a comprehensive study of ship accidents taking place in the last 15 years and concluded, “The evidence confirms the hypothesis that most ship accidents can be linked with older vessels. . . .” The average age of vessels lost was consistently above 20 years, and the average age of lost ships increased steadily over the sample period. National governments inspect foreign ships calling at their ports under the Port State Control (PSC) regime, verifying compliance with the several international conventions of the International Maritime Organization (IMO), a specialized agency of the United Nations. One of the nine regional PSC organizations worldwide, the Paris Memorandum of Understanding, reports the highest detention rates for ships older than 20 years and uses “age over 12 years” as a key risk profile factor.

National ship registries with good safety records, such as the one for the Marshall Islands, will not register ships older than 20 years unless owners provide additional information about the safety of the older ships. The financial community is also suspicious about the safety of older ships. Potential investors were once warned about investing in Horizon Lines, once the largest Jones Act company, because they owned too many older ships.

Jones Act Ships Are Older and Less Safe

US-flag ships are older than those of the world fleet, and the Jones Act contributes to the extraordinary aging of the US fleet. The average age of ships in the US fleet (33 years) is greater than the average age of ships in the foreign-flag fleet (13 years). At the age of 40, El Faro was even older than the average US-flag ship, and it was far older than the average age of international ships (23 years) that were recycled by shipbreakers from 2012 to 2015. In their comprehensive study of the history of US maritime policy, Andrew Gibson of the Naval War College and Arthur Donovan of the US Merchant Marine Academy concluded that the Jones Act contributed to the aging of the US fleet: “The insistence that such ships be U.S. built is the Jones Act’s most constraining feature; no other nation imposes a similar requirement. U.S.-built ships are so expensive that ships in the Jones Act trades are kept in service long past their normal retirement age, the result being that the fleet is very old, indeed much of it is virtually obsolete.”

The Jones Act and Railroad Safety

The Jones Act has contributed to a decline in domestic water transportation. By making US coastal transportation more expensive, the act has also contributed to diminished transportation safety on land. Some oil shipments that could have used coastal tankers have instead been diverted to railroads. A new study of rail safety has demonstrated that additional oil shipments by rail have added to rail congestion and to the frequency and severity of rail accidents.

The El Faro Tragedy and The Age and Safety of Jones Act Ships

The El Faro sinking is a tragic example of the relationship between older ships and safety. El Faro’s owner, TOTE Maritime, operates Jones Act common carrier ocean container shipping services in the Puerto Rico and Alaska trades. TOTE had a different kind of problem earlier on the Puerto Rican route. They were convicted of violating antitrust laws by conspiring to fix freight rates for actions in 2005 and 2008. Before the loss of El Faro, TOTE planned to reposition the ship and continue operating El Faro in their Washington State–Alaska service.

In their investigations of the El Faro sinking that ended in December 2017, the Coast Guard and the National Transportation Safety Board (NTSB) found multiple factors that contributed to the sinking and loss of lives, but both agencies identified factors related to the age of the ship. For example, El Faro was exempt from the current standards for lifeboats. Since it was delivered in 1975, El Faro was permitted to meet the 1960 requirements for ship safety set by the International Convention for the Safety of Life at Sea, rather than the higher standards in place in 2015. NTSB is now recommending closed-top life boats for all ships, rather than the open-top lifeboats used by El Faro. In addition to lower standards for older ships, both agencies cited weaker enforcement of standards for older ships. The Coast Guard was criticized for applying the older safety standards, even though major refitting in 2005–2006 should have caused them to apply the higher standards for newer and remodeled ships. The Coast Guard’s Alternate Compliance Program, which was introduced in the 1990s, allows inspections of US-flag commercial ships required under IMO conventions to be delegated to a ship’s nongovernmental classification society, including—in the instance of El Faro—the American Bureau of Shipping. This practice has been accused of resulting in weaker vessel inspection enforcement than would have been performed by the Coast Guard, and it may have been a contributing factor in El Faro’s loss. Since seamen are the main victims of shipping accidents, it is surprisingly difficult to find public statements from labor union officials expressing concern about possible safety problems with older ships.

Reforming the Jones Act to Improve Safety

Broadly eliminating the most commercially restrictive provisions of the Jones Act—including the US-build, US-ownership, and related requirements—would substantially improve the nation’s economic efficiency and shipboard safety. A narrower but still substantive national reform would be to eliminate only the domestic-build and related requirements, which would completely remove all the incentives to employ older ships. It would revitalize the Jones Act seagoing fleet with modern tonnage. A more moderate reform on a regional basis would be to eliminate the build requirement only for seagoing ships employed in the noncontiguous routes (Alaska, Hawaii, and Puerto Rico). Safety reform could be addressed directly by applying the same standards and enforcement to both old and new ships. A reform that might receive the greatest support would be a permanent exemption from the Jones Act for Puerto Rico, which is suffering from a long-term debt problem, as well as a recent hurricane disaster.


The Jones Act has been justifiably criticized for contributing to higher shipping costs and diverting some transportation from water to land. An unintended consequence of the act is that it contributes to lower ship safety. The US-build requirement of the Jones Act (combined with the high tariff against foreign shipyards and the lower safety standards for older ships) contributes to more dangerous working conditions for American seamen. In spite of the large net cost of the act that is borne by millions of consumers and other end users, the act continues to have strong support from elected officials and union leaders ostensibly representing seamen and shipbuilders. Sponsors of the Jones Act intended to create a stronger merchant marine, but the unintended consequences have been a smaller, older, and more dangerous American fleet that carries very little of US international trade."

“Criminal Aliens” Commit Mostly Victimless Crimes, Few Violent Crimes

By David Bier of Cato.

"During his campaign, President Trump promised to target the “bad hombres” in the United States illegally. But Immigration and Customs Enforcement (ICE) statistics indicate that his administration has cast a much wider net. More than one in four immigrants that ICE arrested last year had no criminal convictions at all, and of the rest, their convictions were mostly victimless crimes—largely traffic infractions, immigration offenses, and drug offenses. Almost 90 percent were for nonviolent crimes. ICE cannot justify its broad crackdown based on these figures.

Figure 1 shows immigrants arrested by ICE by whether they had a criminal conviction (top left) and the distribution of the convictions by type of conviction (bottom right). ICE statistics only provide a list of all convictions that the entire population of criminal aliens committed, meaning that they only show the distribution of convictions, not the distribution of immigrants based on their most serious offense. That said, a majority of all convictions were for crimes with no private victims (i.e. not the government or “society”). Just 11 percent were violent crimes (just one percent were homicide and sexual assault).

Figure 1: Immigrants Arrested by ICE by Criminal Conviction and Distribution of Criminal Convictions

Source: Immigration and Customs Enforcement
Figure 2 shows the distribution within each broad category of convictions. Most violent crimes were assaults, which include simple assaults defined by the FBI to include assaults “where no weapon was used or no serious or aggravated injury resulted” and include “stalking, intimidation, coercion, and hazing” where no injuries occurred. The FBI excludes simple assault from its definition of violent crime, but ICE fails to break down this category, so we cannot. The plurality of property crimes were larcenies, which include “thefts of bicycles, motor vehicle parts and accessories, shoplifting, pocket-picking, or the stealing of any property or article that is not taken by force and violence or by fraud.”
Almost two-thirds of the “possible victims” category includes DUIs, which usually don’t have a victim but impose the threat of injury on people. This category also includes some nebulous categories like “privacy,” “threats,” and disturbing the peace, which are undefined in the ICE report. Nonviolent sex crimes include statutory rape as well as lude behaviors in public. Fraud and forgery could have victims or they could be crimes where immigrants allow their family members to use their identities to obtain work in the United States. Family offenses include “nonviolent acts by a family member (or legal guardian) that threaten the physical, mental, or economic well-being or morals of another family member” that aren’t classified elsewhere (e.g. violating a restraining order). Kidnapping convictions generally arise from custody disputes over children, so I included them in this category.

Figure 2: Distribution of Convictions of Criminal Immigrants Arrested by ICE

Source: Immigration and Customs Enforcement
Victimless offenses were traffic infractions that were not DUIs, immigration offenses such as entering the country illegally, or “vice” crimes (drugs, sex work, or alcohol). Immigration “crimes” include illegally entering the country, reentering after a deportation, falsely claiming U.S. citizenship, and smuggling. Obstruction offenses mainly include parole and probation violations or failure to appear in court.

Cato Institute research has previously shown that illegal immigrants are less likely to end up incarcerated in the United States than U.S.-born individuals of the same age. A new paper by my colleague Alex Nowrasteh concludes that illegal immigrants in Texas are significantly less likely to commit a variety of crimes than U.S.-born adults. Illegal immigrants are not generally threats to Americans. Only certain serious criminals who happen to be immigrants are.

ICE provides a public service when it apprehends and removes immigrants from society who are threats to Americans. It fails the public when it deports other people and, by reducing the number of peaceful people in the society, actually increases the proportion of criminals. This strategy will not make Americans safer—indeed, it will make them less safe. Congress should again require ICE to focus on serious criminals.

Table: FY 2017 Total ERO Administrative Arrests Criminal Convictions
Criminal Category Criminal Convictions
Traffic Offenses - DUI
Dangerous Drugs
Traffic Offenses
Obstructing Judiciary, Congress, Legislature, Etc.
General Crimes
Obstructing the Police
Fraudulent Activities
Weapon Offenses
Public Peace
Sex Offenses (Not Assault or Commercialized Sex)
Invasion of Privacy
Stolen Vehicle
Family Offenses
Sexual Assault
Stolen Property
Damage Property
Flight / Escape
Health / Safety
Commercialized Sexual Offenses

Source: Immigration and Customs Enforcement"

Tuesday, March 20, 2018

Why the Government Shouldn't Break Up Google

There's little evidence Google is ill-serving its customers. So what's the problem?

By Andrea O'Sullivan of Mercatus.
"Has Google's market dominance been a net negative for consumers and innovation—and should government antitrust regulators intervene?

Historically, Google's algorithymic innovation fueled the profitable development of ad-based internet monetization and enabled Google to invest in breakthroughs in mapping, messaging, email, smartphone, and artificial intelligence technology. If something was hot in Silicon Valley, Google probably had something to do with it, or they soon acquired the firm that did.

What was once revolutionary eventually became common technology. Now, every day, hundreds of millions of satisfied internet users enjoy a handful of free Google services that improve their lives without even really thinking about them.

Yet a growing chorus of critics argues that Google is more of an innovation-killer than an innovation-fueler, and suggests it might be time for government antitrust authorities to step in. A new New York Times Magazine article by Charles Duhigg, titled "The Case Against Google," provides a prime example.

Traditionally, arguments about antitrust and government intervention have focused on the potential costs imposed on consumers. The standard monopoly critique, as formulated in the age of Theodore Roosevelt trust-busting, was that firms could grow big enough to squelch competition and raise prices on consumers.

Competition was not necessarily valued in and of itself, but as a check on the power of firms to exploit their customers. Thus, much of the empirical debate on this issue has centered around whether powerful firms have indeed made life worse for their customers.

This "consumer welfare standard," as articulated by Robert Bork's classic work, The Antitrust Paradox, has guided American antitrust policy for decades.

But Duhigg's article notably dispenses with this line of attack altogether. Rather than simply being about "costs and benefits and fairness," Duhigg argues, antitrust policy should be primarily about "progress." And what is progress, in this new conception of antitrust? Why, it's little more than a new flavor of industrial policy, where the government is empowered to intervene and bend markets in the direction that federal lawyers believe is the way of the future. "Antitrust prosecutions," states Duhigg, "are part of how technology grows."

Duhigg concedes that there's little evidence Google is ill-serving its customers. So what's the problem?

According to the new antitrust criticism, Google's market dominance creates opportunities for the tech giant to suppress competing innovations that go unnoticed by consumers. Consumer welfare isn't "harmed," because consumers aren't cognizant about what they are missing out on. But society is made worse off overall, because we lose out on new products and services that could be even better than the market leader's current offerings.

"If you love Google," as Duhigg puts it, "you should hope the government sues it for antitrust offenses—and you should hope it happens soon, because who knows what wondrous new creations are waiting patiently in the wings."

This is an odd inversion of economist Frédéric Bastiat's point about needing to appreciate both what is seen and what is unseen in political economy. But rather than addressing the unseen effects of government intervention, this argument presses us to consider the unseen effects of a lack of government intervention. In other words: Antitrust action today ensures a new generation of antitrust actions in the future. Government meddling is just the spark that sets off a blaze of new innovations in the future.

But could such a strategy actually have the opposite of the intended effect? The curious case of vertical search service Foundem suggests this could be so.

In Duhigg's telling, this scrappy search service aimed to provide internet users with the lowest prices on specific items for sale online. Foundem's search algorithm was supposedly structured in a vastly superior way to Google's services, consistently offering a wider range of lower prices than Google's tool was able to locate. But while Foundem always ranked near the top of MSN Search and Yahoo results, it started slipping from Google search results over time.

Foundem believes that Google purposefully demoted its service from search results as an anti-competitive move to squash a more innovative competitor. Google, of course, denies that it engaged in such anti-competitive behavior. And the Federal Trade Commission (FTC), which regulates anti-competitive behavior, sided with Google, finding no clear evidence of wrongdoing.

Without more specific insider knowledge of the particulars of this case, it is difficult to pertain precisely who is at fault. What's more interesting to me, however, is how the case of Foundem seems to contradict the "antitrust as a catalyst for innovation" narrative that Duhigg crafts. A visit to the Foundem website does not leave one with the impression that the company is an impressive leader in innovation: The user interface looks like it could have been on the cutting-edge over a decade ago, and navigating through the various categories and subcategories is not exactly an exercise in ease of access.

On Twitter, the company argued that Google's 2011 Panda update prevented them from investing in design and usability updates. Perhaps this is so. But if true, can Duhigg really argue that Foundem's pivot to specialize in antitrust activities against their mammoth competitor is a catalyst for innovation? On the contrary, by Foundem's own admission on its website, the company has suspended all operation and development on its technology until they have achieved some threshold of a "level playing field" against Google through the courts, regulation, or legislation.

If Foundem's search algorithm is as revolutionary as Duhigg and the company maintain, it would be a real shame that it be hidden for lack of a full-scale regulatory push. If it isn't as good as its founders maintain, then these machinations merely amount to a costly waste and a threat to other large-scale innovators in this space.

Once viewed in this light, Duhigg's broadside against Google regarding the Foundem debacle is less clever than it initially seems. It is novel and counterintuitive to argue that government antitrust regulations actually stimulate innovation, but the case study presented to prove this point appears to suggest the opposite. The government may be very good at breaking up companies, but it is pretty hard to argue that this is a great source of dynamism."

Monday, March 19, 2018

The Bear Stearns Bailout Didn't Avert the Financial Crisis, It Caused the Crisis

By Peter Wallison.

"Almost exactly ten years ago, the federal government rescued Bear Stearns, a large Wall Street investment bank that was sinking under the weight of its subprime mortgage holdings. A recent article in the Wall Street Journal suggested that the Bear rescue turned out to be only a temporary measure and did not prevent the financial crisis that occurred six months later. But rather than an unsuccessful effort to avert a crisis, the Bear Stearns bailout was actually a principal cause of the disastrous panic that hit the markets six months later.

To many on Wall Street and elsewhere in 2008, the rescue of Bear established a policy that the government was going to rescue all the large financial institutions.  Otherwise, the bailout made no logical sense.

Bear was the smallest of the five large Wall Street investment banks, a group that also included Goldman Sachs, Morgan Stanley, Merrill Lynch, and Lehman Brothers. Lehman, the next smallest, was 50% larger than Bear. It was reasonable to believe that if the government was going to rescue the smallest of these firms, it would certainly rescue those that were larger.

So the immediate result of the Bear rescue was moral hazard—a change in the psychology and actions in the market based on an assumption about government policies. This had several effects that ultimately led to the financial crisis.

Normally, during financially troubled times, the managements of financial companies would seek to reassure creditors by shoring up the firm’s equity position. This, however, did not seem necessary after the Bear rescue. If the government was going to bail out all creditors—as it did in the case of Bear—the creditors of even larger firms would now see no reason to run. If the worst happened, they too would be bailed out.

This analysis fit well with management’s interests. The stock market had fallen by almost 50% as the number of mortgage failures multiplied in 2007 and 2008, so managements had little appetite for diluting their shareholders by selling additional equity. The smart course seemed to be riding out the storm by becoming as liquid as possible, without issuing large numbers of new shares.

Accordingly, after the rescue of Bear, the financial market settled down, even as conditions in the mortgage market grew worse.

On September 7, the Treasury Department declared that the two massive government-backed mortgage companies—Fannie Mae and Freddie Mac—were insolvent, and placed them in a government conservatorship in which they remain today.

This shocked investors. Fannie and Freddie had always been known for buying only prime mortgages. If they were insolvent, investors reasoned, the mortgage crisis was not solely a problem of subprime loans.  Very few understood at the time that both companies—in complying with a regulatory system known as the affordable housing goals—had acquired more than $1.5 trillion in subprime and other risky mortgages.

The insolvency of Fannie and Freddie re-ignited fear in the financial markets. During the succeeding week, Lehman Brothers, the other investment bank—in addition to Bear Stearns—most heavily invested in mortgages, could not raise new financing to replace short term funds that were not being rolled over.

The moral hazard created by the Bear rescue now had its disastrous effect. As Lehman slid toward bankruptcy during the following week, the Treasury and Fed did nothing. In later accounts, both Fed chair Bernanke and New York Fed President Tim Geithner, said that Treasury Secretary Paulson had told them he was being called “Mr. Bailout” and would not rescue Lehman.

When the Treasury and the Fed—seemingly for no reason—failed to rescue Lehman, requiring it to file for bankruptcy on September 15, investors panicked. Not expecting a major failure, and now uncertain whether any investment was safe, they wanted cash or government securities. Liquidity for private firms—even those previously thought to be financially strong—dried up, putting many of them in jeopardy of failing. It was now clear that once the government had rescued Bear Stearns, it was a massive mistake not to rescue Lehman. The question, then, was whether the Treasury and Fed should have rescued Bear in the first place.

Some might contend that if Bear had been allowed to fail, the same panic would have occurred in March instead of the following September. Although we’ll never know for sure, this seems unlikely. Bear was a much smaller firm than Lehman, and had been on its way to failure for several months; no one would have been shocked when it went under. In addition, no large nonbank firm had ever before been rescued with a government bailout, so the market had no expectation that Bear would be rescued. Finally, even though Lehman’s collapse was a complete surprise, and fell on an unprepared market, no other large firms failed because of interconnections with Lehman. So the fear that the failure of one large firm would drag down others—the reason that Bear had been rescued—was wrong.

In other words, if Bear had been allowed to fail, there would have been losses, but not the panic that followed Lehman’s unexpected collapse; other firms, even Lehman, would at that point have rushed to shore up their equity positions. Under these circumstances, it is likely that the 2008 financial crisis would never have occurred."

Sunday, March 18, 2018

The Industrial Revolution did not cause hunger, poverty and child labor-it helped to eliminate them

Celebrate the Industrial Revolution – and the fossil fuels which drove it by Marian L. Tupy of Cato.
"In an article for CapX last week, I discussed Johan Norberg’s new book, Progress: Ten Reasons to Look Forward to the Future. As Norberg notes, over the last two centuries, humanity has made massive improvements in terms of nutrition, sanitation, life expectancy, poverty, violence, literacy, environmental quality, political freedom and child labor.

Today, I want to discuss the role that the Industrial Revolution in general and fossil fuels in particular have played in bringing those improvements about.

Those readers who are familiar with Alex Epstein’s excellent The Moral Case for Fossil Fuels will recognize the gist of my argument: fossil fuels, which drive, among other things, modern agriculture and industrial production, make present-day abundance possible.

Remove cheap energy and most aspects of modern life, from car manufacturing and cheap flights to microwaves and hospital incubators, become a luxury, rather than a mundane, everyday occurrence and expectation.

Yet the Industrial Revolution has become tainted (in the popular imagination) with the very problems that it has helped to cure.

Play a word association game with most high school and college students today, and you will observe the negative connotations linking the Industrial Revolution and environmental degradation, exploitation, child labor, poverty, hunger, etc.

If my argument strikes you as anecdotal, consider the following statements:

Writing in The Independent in 2010, David Keys noted, “Huge factory expansion would not have been possible without exploitation of the young … the exploitation of children massively increased […] in the late 18th and early 19th centuries.”

Writing in The Nation in 2015, Greg Grandin observed, “Each generation seems condemned to have to prove the obvious anew: slavery created the modern world, and the modern world’s divisions are the product of slavery.”

And then there is E. P. Thompson’s classic 1963 book, The Making of the English Working Class. According to the author:

“The experience of immiseration came upon them [people in 19th century England] in a hundred different forms; for the field laborer, the loss of his common rights and the vestiges of village democracy; for the artisan, the loss of his craftsman’s status; for the weaver, the loss of livelihood and of independence; for the child, the loss of work and play in the home; for many groups of workers whose real earnings improved, the loss of security, leisure and the deterioration of the urban environment…
Wage cutting [during the Industrial Revolution] had long been sanctioned not only by the employer’s greed but by the widely-diffused theory that poverty was an essential goad to industry.”

This is, by necessity, a tiny sample of massive literature and commentary that ties the Industrial Revolution and, consequently, free trade and capitalism, to human suffering.

I am going to try to convince you of the opposite: that the Industrial Revolution, and the fossil fuels that powered it, contributed to the liberation of humankind.

Homo sapiens is, probably, 200,000 years old. For 99 percent of our existence on this planet, we have derived most of our energy from the labor of people and animals. Only a small fraction of our energy came from water wheels and windmills.

Fire was also a source of energy. But it was extremely dangerous and of limited use. Cooking of food, for example, led to such disasters as the Great Fire of London in 1666. It was also catastrophic for the environment.

One theory of the origins of the Industrial Revolution holds that the English resorted to fossil fuels because they ran out of trees. (Using wood to cook food and keep warm, incidentally, remains the primary source of environmental degradation in Africa.)

Our dependence on energy produced by people and animals helps to explain why slavery was a universal and eternal phenomenon. Defeated peoples on all continents and throughout human history were either killed or put to work as slaves.

There were no internment camps to hold captive populations. Until very recently, prisons were short-term holding cells, where the accused awaited trial, punishment and execution.

More often than not, punishment involved some form of a financial penalty, beating or mutilation, not a lengthy prison sentence at the public expense. The notion of housing and feeding former enemy combatants would strike our calorie-deprived ancestors as utterly insane.

Understandably, if parochially, American and British historians and intellectuals tend to focus on the most recent examples of slavery – that of African slaves in the American south and the sugar islands of the Caribbean.There is nothing wrong with remembering and appreciating the horrors of African slavery, of course, but let us not lose sight of a global perspective.

The very word “slave” probably derives from late Latin “sclavus”, which in turn denotes the Slavic peoples of Central and Eastern Europe who were enslaved by the Turks. Incidentally, the Roman word for a slave was not sclavus but “servus.” Servus, which is where the English word “servant” comes from, remains a popular greeting, akin to “hello”, among the people of Central and Eastern Europe.

The same applies to child labor. According to the economic historian Eli Heckscher:

“The notion that child labor in either theory or practice was a result of the Industrial Revolution is diametrically opposed to reality. Under mercantilism it was ideal to employ children almost from the age when they could walk, and, for example Colbert [Louis XIV’s Minister of Finance from 1665 to 1683] introduced fines for parents who did not put their six-year-old children to work in one of his particularly cherished industries.”

As Norberg notes:

“In old tapestries and paintings from at least the medieval period, children are portrayed as an integral part of the household economy.… Many worked hard in small work-shops and in home-based industry, and some scholars suggest that this was more intense and exploitative than child labor during industrialization. In the worst cases, children climbed chimneys and worked in mines. Prior to the mid-19th century it was common for working-class children to start working from seven years of age. Here, as elsewhere, the survival of the family demanded that everybody contributed.”

The slaves and the young, in other words, were a source of much-needed energy – and that brings us to hunger and poverty.

Prior to the Industrial Revolution and burning of coal, gas and oil, most of the calories that people obtained – either directly by planting, growing and harvesting, or indirectly, by manufacturing and trading – they immediately consumed. The exceptions to the rule were the kings, soldiers and priests, who relied on the work of others.

Only very few ordinary people, mostly merchants and money-lenders, broke out of subsistence existence and escaped the vicious cycle of ceaseless manual labor, hunger and poverty.

For the “crime” of escaping from the “natural condition” of poverty, these people were then envied and resented by the bulk of the population.screen-shot-2016-10-28-at-08-03-28The Industrial Revolution changed all that. Mechanization of agriculture, combined with the use of guano and, later, synthetic fertilizer, massively improved agricultural productivity.

For the first time, the farm produced more food than the farmers themselves needed to survive. That meant that millions of erstwhile agricultural laborers could move off the farm and into the city.

Factories that sprung up in the urban centers were initially powered by steam that was produced by the burning of coal. Many of the new factories specialized in the production of clothing, which collapsed in price.

This was important. As Carlo Cipolla observed in his 1994 book Before the Industrial Revolution: European Society and Economy 1000-1700:

“In preindustrial Europe, the purchase of a garment or the cloth for a garment remained a luxury the common people could only afford a few times in their lives. One of the main preoccupations of hospital administration was to ensure that the clothes of the deceased should not be usurped but should be given to lawful inheritors.During epidemics of plague, the town authorities had to struggle to confiscate the clothes of the dead and to burn them: people waited for others to die so as to take over their clothes – which generally had the effect of spreading the epidemic.”

At first, health and housing in the industrial centers were awful. No European city, after all, was prepared for an influx of millions of people from the countryside.

By the mid-19th century, as T. S. Ashton explains in his 1948 book The Industrial Revolution: 1760–1830, working conditions started to improve and wages started to rise. That, in turn, removed the need for child labor, which rapidly declined.What about the end of slavery?

Here again the Industrial Revolution played an important, though indirect, role. Public sentiments regarding slavery continued to evolve over time. The first millennium, for example, saw slavery abolished in some European countries, including England, Iceland, Norway and Sweden.

Unfortunately, the international slave trade continued by and large unimpeded until 1807, when Great Britain abolished the slave trade throughout her global empire and used her naval supremacy to compel other powers, including France and Spain, to do the same.

In any case, British hegemony and naval superiority were connected to the wealth produced and technological innovations spurred by the Industrial Revolution. The Industrial Revolution started in Great Britain and it is, therefore, no wonder that it benefited the British Isles first.

Still, the long-term positive effects of the Industrial Revolution were global. The Industrial Revolution did not cause hunger, poverty and child labor. Those were always with us. The Industrial Revolution helped to eliminate them."

Higher State And Local Minimum Wages May Be Hurting Teen Employment

By Adam Millsap of Mercatus. Excerpts:

"Since 2000, the percentage of teens 16 to 19-years old who are employed has fallen from 46% to around 30%. Despite the magnitude of this decline, there are few studies that try to explain it.

A new study by economists David Neumark and Cortnie Shupe fills this gap by examining three potential causes: a rising minimum wage that could reduce employment opportunities for teens; an increase in the returns to education that could cause teens and their parents to focus on school at the expense of a job; and increasing labor market competition from Spanish-speaking immigrants.
Of the three reasons studied, the authors find that a rising minimum wage has had the largest effect. For example, in 2015 the percentage of teens age 16 or 17 who were in school and employed would have been about 17%, instead of 14%, if the average minimum wage hadn’t increased since 2000. Competition from immigrants had the second largest effect, while changes in the returns to schooling had little effect.

The effects of both the minimum wage and immigration were larger on 16 and 17-year olds than on 18 or 19-year olds. This isn’t surprising, since a higher minimum wage reduces employment opportunities for the lowest-skilled and least-experienced workers the most. Additionally, immigrants are often better substitutes for lower-skilled, younger native workers than higher-skilled, more experienced native workers.

This has ramifications beyond how much spending money teenagers have. The authors also examine whether the decline in employment has affected teenagers’ future earnings. If teenagers who don’t work spend more time studying or accumulating skills in school, then less work could lead to higher wages as an adult. Alternatively, employment could help teens accumulate skills and knowledge they don’t get in the classroom, and this could lead to higher wages in the future.

The authors find little evidence supporting the idea that not working leads to acquiring more skills in school. Instead, they find some evidence that teens exposed to higher minimum wages, and thus fewer employment opportunities, had lower wages as adults.

The lesson? Teenage employment is likely an important way for people to accumulate the skills and work experience that lead to higher future wages. As someone who worked in entry-level jobs throughout high school and college and learned some valuable lessons along the way, this makes sense.

This study’s findings have important implications for state and local officials who control their jurisdiction’s minimum wage. Several states and cities have increased their minimum wage over the last several years, including Colorado, Washington, Seattle, and several cities in California.
While this study uses national data, its findings imply that by increasing their minimum wages, these states and cities are making it more difficult for their teenagers to gain valuable work experience."