Thursday, August 28, 2014

The Unintended Consequences of Environmental Policy: For the Birds

From Marian L. Tupy of Cato. 
"So, here is a story to make your blood boil. According to National Review, “the federal government acted with a bias, giving renewable-energy companies a pass on unlawful bird deaths while rigorously prosecuting traditional energy companies for the same infractions.” The NR article follows a string of recent stories complaining about tens of thousands of birds cut up to pieces or fried in the sky by windmills and solar plants.
Speaking of birds…

Five decades ago, Rachel Carson, of Silent Spring infamy, helped to ban a pesticide called DDT. Back then, DDT was widely used not only in agriculture, but also in malaria control. Carson argued, among other things, that the use of DDT endangered bird populations. The political left jumped on Carson’s arguments. After a massive campaign, DDT was withdrawn from agriculture and its use in malaria control was greatly restricted. Most countries followed the American example and banned DDT for use in agriculture.

Although developing countries could technically use DDT for disease control, no donor agencies (dominated by western leftists) would support its use. This amounted to a de facto ban of DDT in malaria control. Nobody knows for sure, but thousands of Africans, perhaps millions, have died of malaria since the use of DDT was prematurely discontinued, all because of a hysterical drive to save the birds in the West.

Today, tens of thousands of birds are dying to satisfy the newest progressive fetish: the drive for renewable energy. At least they are dying in an environmentally friendly way.

As the left likes to say, you cannot make an omelet without breaking some eggs!"

Locavorism Isn’t Sustainable

From Don Boudreaux of Cafe Hayek. 
"In my latest column in the Pittsburgh Tribune-Review I explore the mistaken notion, held by many locavores, that eating greater amounts of locally grown foods is good for the environment (link added):
Consider a favorite cause of the sustainability movement: locavorism. Champions of “sustainability” assert that, because local foods don’t have to be shipped very far to their final consumers, such foods are more “sustainable” than are foods grown and raised at great distances from where they are consumed.
This analysis appears sound to people who are blind to all but the resources used to transport foods from farms to dining tables. Yet transportation consumes only a small portion of the resources required to feed us. Labor, fuel, water, irrigation equipment, tractors and other farm tools, fertilizers, pesticides, packaging and (of course) land must also be used.
What effect would eating only locally grown foods have on the use of these other resources? Locavores seldom ask this question.
Fortunately, this question has been asked by sensible economists. In their splendid 2012 book, “The Locavore’s Dilemma,” Pierre Desrochers and Hiroko Shimizu conclude that the ecologically and economically best diet is one with foods from all across the globe. Among the most important reasons is that the amount of resources required to eat only locally grown foods would be stupendous.
UPDATE: To make explicit a point that I assumed was obvious if only implicit in the above passage, I would amend the last-quoted sentence to read:
Among the most important reasons is that the amount of resources required to eat locally grown foods rises to ever greater and more wasteful levels the more people eat locally grown foods simply because those foods are locally grown and, hence, the consumption of which is believed to be better for the environment than eating non-locally grown foods."

Wednesday, August 27, 2014

My response to the San Antonio Express-News on minimum wage laws

I just sent this to the paper. If it does get printed it might take a week or so.
"Last month an Express-News editorial advocated an increase in the minimum wage ("Minimum wage frozen at intolerable,” July 25). This was based on a report that said states that increased their minimum wage added more jobs than those that didn't raise minimum pay over a six month period.

Now that report has been challenged by two economics students from George Mason University, Liya Palagashvili and Rachel Mace, as reported last week in The Wall Street Journal.

The Express-News editorial implied that a higher wage for the targeted workers will lead to more spending, spurring economic growth and leading to more jobs.

But Palagashvili and Mace say that this is just 2% of the workforce and it will therefore have an insignificant effect. That is a point that Christina Romer, Obama’s first chief economic advisor, has also made

They also found of the 3 states that raised the minimum wage the most, the job growth was lowest among all states that raised the rate.
In fact, those three states, Connecticut, New Jersey and New York, had a lower rate of job growth than the 37 states that did not raise the rate. And “in New Jersey, the state that hiked minimum wage the most—to $8.25 an hour from $7.25—employment actually fell by about 0.56%.”

A statistical test they did showed that there was no significant difference in job growth between the states that raised the minimum wage and those that did not. It is also true that 9 of the 13 states simply adjusted their minimum wage for inflation, so the increases were very slight and therefore not meaningful.

Texas simply goes by the federal minimum wage. Yet since December 2007 Texas has added 1.3 million jobs while all other states combined have 1.23 million fewer jobs. That seems like a much better test than just six months.

Christina Romer has also pointed out that a higher minimum wage might force businesses to require job applicants to have experience. This means that the unskilled cannot get jobs.

What happens to them then? Research by economists Andrew Beauchamp and Stacey Chan of Boston College suggests that many of those workers turn to crime. Policies like minimum wage laws often have these unintended and unwanted consequences.

It is usually retail outlets and fast food restaurants that are affected by the law. Yet those are very competitive industries. Individual firms cannot afford to pay workers less than they are worth since those workers can always find other companies to work for. Again, this is a point made by Christina Romer.

A minimum wage is paid for by either the customers, the firm (including any stock holders) or both. If you don't eat at McDonalds or own stock in McDonalds, you don't have to contribute to this government anti-poverty program. Ideally, we should all have to pay to fight poverty.

Romer advocates expanding the Earned Income Tax Credit. Greg Mankiw, one of George W. Bush's chief economic advisors, agrees.

Economist Richard V. Burkhauser of Cornell University has shown that "only 11.3% of workers who will gain from an increase in the federal minimum wage to $9.50 per hour live in poor households." So it is not even a good anti-poverty tool.

What workers need is a growing economy. In booming North Dakota, you can start at $17 per hour at the nation's busiest Wal-Mart in Williston."

Tuesday, August 26, 2014

A Driving School in France Hits a Wall of Regulations

From the NY Times. Excerpts:
"Alexandre Chartier and Benjamin Gaignault work off Apple computers and have no intention of ever using the DVD player tucked in the corner of their airy office. But French regulations demand that all driving schools have one, so they got one."

"The other driving schools have sued them, saying their innovations break the rules. Their application for an operator’s license for their school, Ornikar, has been met with total silence"

"getting a driver’s license here is so difficult and expensive that it has inspired books on the subject,"

"the myriad rules governing driving schools — and 36 other highly regulated professions — stifle competition and inflate prices in France.

The rules set up barriers to newcomers,"

"President Fran├žois Hollande’s administration may finally take steps to tear down the tangle of rules that keep competition — and many young people — out of so many sectors of the economy."

"But there has been scant progress so far."

"the government offers only a limited number of exams each year, and these are doled out to the driving schools depending on their success rate the year before. That fact alone gives the old guard a virtual monopoly,"

"the written test, which he says goes far beyond making sure that a person knows the rules of the road. Instead, he said, it seems intended to trip students up with ridiculous questions,"

"the French are probably paying 20 percent more than they should for the services they get from regulated professions,"

"The failure rate for the French driving exam is about 41 percent,"

"barriers to getting a license are so high that about one million French people, who should have licenses, have never been able to get them."

"it often costs 3,000 euros, or about $3,900, to get a license. But others said the average was closer to 1,500 to 2,000 euros."

"Under the current system, would-be drivers register with a driving school. The schools offer instruction in their own classrooms (“often smelly caves,” according to Mr. Koenig) for the written test and on the road. They also determine when students can take an exam.

Since the school never has enough slots for all its students, it picks the best students first. The wait can stretch 18 months or longer. Although students are required to take only 20 hours of driving lessons, most end up doing double that while they wait for a chance to take the test."

Genetically modified food is safe—and essential to feed a hungry planet

See Meet Mr. Frankenfood. From the WSJ. Excerpts:
"Frescada lettuce, a crunchy leaf that is a cross between romaine and iceberg lettuce and was produced, as it happens, through conventional breeding techniques.

Does that mean it's genetically modified? Yes. You may have noticed that lettuce doesn't grow in the wild. For a millennium, farmers have genetically improved crops through breeding"

"and more than 90% of all acres planted with corn and soybeans are now GM crops. These crops, typically fed to livestock and used as ingredients in other foods, are in nearly 80% of the products on grocery-store shelves.

The switch to GM crops happened so rapidly because farmers favored the new technology over the traditional."

"Genetically modified seeds are more resilient, yield more crops on less land and require less labor."

""The biotech-derived products that we eat are the most highly tested and regulated components in what we consume,""

"It takes about $100 million to get one seed from discovery to market. Crops that are bred conventionally, on the other hand, undergo no government testing. None.

Research shows that GM crops are just as safe. "Every regulatory agency—I'm not talking U.S.; I'm talking the world, including Europe—has said these things are as nutritious and healthy as anything else," Mr. Begemann points out. That includes the FDA, the World Health Organization and the British Royal Society, all of which have declared GM crops as safe as conventional crops."

"The anxiety is fueled by "outright myths," including the one that GMOs aren't safe to eat. But no one is getting sick. Another myth is that crops don't increase yield. Yet farmers keep buying the seeds"

"GM crops help the environment by reducing pesticide use. Thanks to fewer sprays and less tillage, GM crops in 2012 reduced world-wide carbon emissions by 26.7 billion kilograms—the equivalent of taking 11.8 million cars off the road for a year,"

"we already have a useful label at the federal level: the organic seal. "Anybody who wants to stay away from GM can buy organic"

Monday, August 25, 2014

Study: US workers are staying put more than ever. And government is making the problem worse

From James Pethokoukis of AEI.
"A deep, dynamic, fluid, flexible labor market is supposed to be one of America’s economic strengths and competitive advantages. Jobs are created, jobs are destroyed as a changing market demands. Workers come and go, always looking for better-paying, more-fulfilling gig. But that process is breaking down. From the Jackson Hole conference, “Labor Market Fluidity and Economic Performance” by Steven J. Davis and John Haltiwanger:
1.) The U.S. economy experienced large, broad-based declines in labor market fluidity in recent decades. Declines in job and worker reallocation rates hold across states, industries, and demographic groups defined by gender, education and age. Fluidity declines are large for most groups, and they are enormous for younger and less educated workers.
2.) Many factors contributed to reduced fluidity: a shift to older firms and establishments, an aging workforce, the transformation of business models and supply chains (as in the retail sector), the impact of the information revolution on hiring practices, and several policy-related developments. Occupational labor supply restrictions, exceptions to the employment-at-will doctrine, the establishment of protected worker classes, minimum wage laws, and “job lock” associated with employer-provided health insurance are among the policy factors that suppress labor market fluidity.
3.) The loss of labor market fluidity suggests the U.S. economy became less dynamic and responsive in recent decades. … These developments raise concerns about productivity growth, which has close links to factor reallocation in prominent theories of innovation and growth and in many empirical studies. The high-tech sector’s sharp drop-off in business entry rates and in the incidence of fast-growing young firms after 2000 reinforces this concern. …  Our econometric evidence supports the hypothesis that reduced fluidity lowers employment rates, especially for younger and less educated workers.
4.) If our assessment of how labor market fluidity affects employment is approximately correct, then the U.S. economy faced serious impediments to high employment rates well before the Great Recession. Moreover, if our assessment is correct, the United States is unlikely to return to sustained high employment rates without restoring labor market fluidity.
Labor Market Fluidity and Economic Performance  by Steven J. Davis and John Haltiwanger
Labor Market Fluidity and Economic Performance
by Steven J. Davis and John Haltiwanger

So, another piece of evidence that America’s economic problems did not start with the usual suspects: George W. Bush, Obamanomics, or the Great Recession. Yes, an aging workforce plays a role. So do big changes in the US retail sector where big-box retailers show less job churn than the smaller players they replaced. Technology has made it easier for employers to screen applicants, including access to criminal records, credit histories, media attention, and social networking activity.

And there is some upside here to having more stability. Job losses can lead to lower earnings and can have negative affects on mortality rates, family stability, and mental health. What’s more, the transformation of the US retailers has boosted productivity and consumer purchasing power.
On the downside, less labor dynamism “goes hand in hand with a slower arrival rate of new job opportunities” which “increases the risk of long jobless spells” and hampers the ability to “switch employers so as to move up a job ladder, change careers, or satisfy locational constraints.” When Americans are on the move, America is on the move. And right now, we aren’t — with evidence to suggest bad government policy shares a large chunk of the blame."

Sunday, August 24, 2014

Minimum Wage and Crime

From Don Boudreaux.
"I meant to post a link to this paper by Andrew Beauchamp and Stacey Chan when I first discovered it several months ago from Tyler Cowen at Marginal Revolution.  The paper explores empirically the connection between minimum-wage rates and crime.  Alas, I apparently forgot to actually post the link.  (I was reminded of this paper just now through an e-mail from Frank Stephenson.)

Here’s the abstract:
Does crime respond to changes in the minimum wage? A growing body of empirical evidence indicates that increases in the minimum wage have a displacement effect on low-skilled workers. Economic reasoning provides the possibility that disemployment may cause youth to substitute from legal work to crime. However, there is also the countervailing effect of a higher wage raising the opportunity cost of crime for those who remain employed. We use the National Longitudinal Survey of Youth 1997 cohort to measure the effect of increases in the minimum wage on self-reported criminal activity and examine employment–crime substitution. Exploiting changes in state and federal minimum wage laws from 1997 to 2010, we find that workers who are affected by a change in the minimum wage are more likely to commit crime, become idle, and lose employment. Individuals experiencing a binding minimum wage change were more likely to commit crime and work only part time. Analyzing heterogeneity shows those with past criminal connections are especially likely to see decreased employment and increased crime following a policy change, suggesting that reduced employment effects dominate any wage effects. The findings have implications for policy regarding both the low-wage labor market and efforts to deter criminal activity."