Walmart lowers prices and increases selection. It doesn't lower social capital.

From Art Carden of EconLog.

"As I mentioned earlier, Discount Retailing ate my research agenda. Charles Courtemanche and I have written a handful of papers (a couple of them with Jeremy Meiners) about the effects of Walmart (and now Costco) on different aspects of a good life. I summarized some of this for The Freeman in early 2010.

The TL;DR on our work: Walmart's lower prices have a lot of beneficial economic effects. There isn't much to say these lower prices come at the expense of less-robust community life, and one of the offsetting costs (slightly higher obesity due to Walmart Supercenter entry) is very small relative to the savings people enjoy from low prices and Walmart's competitive effects.

You can find our journal articles on Walmart here (the link to the Costco paper needs to be updated). The first three papers, which appeared in 2009, suggest that Walmart doesn't really matter that much when it comes to social capital, individual values, and leisure activities. We're gaining the world, so to speak, with lower prices and greater selection, but we are not losing our souls in that we aren't increasingly-alienated from one another, moving our values in more or less-conservative directions, or sacrificing refined learning for lowbrow pursuits. To paraphrase our 2009 paper "Wal-Mart, Leisure, and Culture," people aren't trading T.S. Eliot's "The Wasteland" for television's vast wasteland because of Walmart entry.

Walmart lowers prices and increases selection. It stands to reason, perhaps, that more Walmart Supercenters might mean people eating more, which in turn might mean higher obesity. In the first version of our paper on this subject, we found that there were actually very small reductions in obesity due mostly to the presence of Walmart discount stores and warehouse clubs. We attributed this to an income effect, and it led to my first contribution to Forbes. After the paper bounced around a few editors' desks--it even made it past the editors and to the referees at the Quarterly Journal of Economics--we adopted a different identification strategy at the suggestion of referees at the Journal of Urban Economics and found that there's a different story at play. Using distance from Bentonville, Arkansas to predict Walmart Supercenter locations, we find that Super Walmarts lead to rising Body Mass Indexes and a higher probability of being obese. Some back-of-the-envelope calculations show, though, that the obesity-related health costs we can attribute to Walmart Supercenters is a small fraction of the increase in consumer well-being attributable to lower prices.

In our most recent paper, we find evidence that incumbents react to Costco entry with higher prices. Since the price data we were using does not sample warehouse clubs, we were able to get pretty clean identification of the Costco effect on prices. This could be because incumbents write off price-sensitive shoppers and focus on catering to price-insensitive shoppers (as Frank and Salkever argues happens sometimes in response to generic drug entry). It could also be because firms respond to Costco entry by offering better selection, better amenities, and so on. We don't discuss this in the paper, but there might be an agglomeration effect whereby Costco entry raises demand for goods and all surrounding stores, and this agglomeration effect dominates the price effect on demand for competitors' products. We don't see the same effect for Sam's Club, and that remains a bit of an unsolved mystery at this point though we argue that it could be that Sam's sells more product to small business customers while Costco's customers are mostly families. We plan to explore that in greater detail in the future.

What does this mean for public policy? When I give talks on the issue, I argue that there's no good reason for communities to fight Walmart and other Big Boxes, but there's no good reason for communities to give them special privileges, subsidies, and other breaks either.

In terms of my research agenda, discount retailing has been the gift that keeps on giving. We'll write a book about it someday, but for now, there's still a lot we don't know."

Politicians’ Arrogance Is Unbounded

From Cafe Hayek.

"Here’s a letter to the Wall Street Journal:

The substance of former GOP Congressman George Nethercutt’s defense of Congressional earmarks is as contorted as is the language he uses for this defense - for example: “Allowing earmarks provides an opportunity for constituents to advocate to their members for accountable federal spending in their districts or state” (Letters, Nov. 28).

In light of the difficulty of making sense of this indigestible word salad, one can only guess at Mr. Nethercutt’s meaning.  My guess is that he’s asserting that - compared to Congress as a whole and to the executive branch - individual members of Congress, using earmarks, spend money more wisely in their districts or states because these members gain more intimate, local knowledge of the needs and opportunities of the people there.

This claim about local knowledge is likely true, but it doesn’t support the case for earmarks.  Instead, it supports the case for lower taxes, less spending, and smaller government.  If money is spent most wisely by people with the most precise and reliable knowledge of the diverse needs and opportunities in each of this country’s many different locales, then each private citizen, in his or her own individual household or firm, is far better able to spend money ‘accountably’ than is any politician working in Washington.  As my friend Frayda Levin said a few years ago in response to her senator’s similar defense of earmarks, it’s absurd for taxpayers to “send money to D.C.” and “then have to spend resources finding a sympathetic ear who can … understand local needs.”

Sincerely,
Donald J. Boudreaux
Professor of Economics
and
Martha and Nelson Getchell Chair for the Study of Free Market Capitalism at the Mercatus Center
George Mason University
Fairfax, VA  22030"

The trend in oil prices is due to that most basic of economic factors: Supply and demand

From Chris Mooney of the Washington Post. Excerpts:

"Prices for West Texas Intermediate crude oil -- often used as a benchmark of U.S. prices -- dropped below $70 per barrel for the first time since 2010. This continues a dramatic price slump for oil, which cost over $100 per barrel as recently as June."

"the Organization of the Petroleum Exporting Countries -- a  group of 12 nations including Saudi Arabia, Iran and Venezuela that holds enormous power over global energy markets, producing 40 percent of global oil supply  --  decided on Thursday not to cut production at their meeting in Vienna."

"Even as OPEC kept production steady, it has been growing elsewhere. The United States, most of all, has seen a major growth in oil production, thanks to the shale oil revolution, in which new technologies like horizontal drilling have allowed access to hydrocarbons deep beneath the Earth's surface.

The figures from the Energy Information Administration are truly dramatic: Almost twice as many barrels a day of crude oil are being produced now in the U.S., versus the mid-2000s:"

"Production of oil has also been up in many other countries."

" there's just more oil out there for people to buy, which is having a predictable effect on prices, pushing them downward."

"while the U.S. has recovered steadily from the Great Recession, many other countries have not. They're struggling, and that is dampening oil demand.

In Europe, for instance, while total petroleum consumption averaged over 15.3 million barrels per day in 2009, it was under 14.3 million in 2013, and has dropped further since."

"In the U.S., we're also using less fuel in our cars because those cars are more efficient. The sales-weighted fuel economy of vehicles in the U.S. increased from 20.8 miles per gallon in 2008 to 25.3 miles per gallon in 2014."

Do Rich People Have an Obligation to Give Back?

Interesting perspective from LAWRENCE W. REED, president of Foundation for Economic Education. 

"For a society that has fed, clothed, housed, cared for, informed, entertained, and otherwise enriched more people at higher levels than any in the history of the planet, there sure is a lot of groundless guilt in America.

Manifestations of that guilt abound. The example that peeves me the most is the one we often hear from well-meaning philanthropists who adorn their charitable giving with this little chestnut: “I want to give something back.” It always sounds as though they’re apologizing for having been successful.

Translated, that statement means something like this: “I’ve accumulated some wealth over the years. Never mind how I did it, I just feel guilty for having done it. There’s something wrong with my having more than somebody else, but don’t ask me to explain how or why because it’s just a fuzzy, uneasy feeling on my part. Because I have something, I feel obligated to have less of it. It makes me feel good to give it away because doing so expunges me of the sin of having it in the first place. Now I’m a good guy, am I not?”

It was apparent to me how deeply ingrained this mindset has become when I visited the gravesite of John D. Rockefeller at Lakeview Cemetery in Cleveland a couple years ago. The wording on a nearby plaque commemorating the life of this remarkable entrepreneur implied that giving much of his fortune away was as worthy an achievement as building the great international enterprise, Standard Oil, that produced it in the first place. The history books most kids learn from these days go a step further. They routinely criticize people like Rockefeller for the wealth they created and for the profit motive, or self-interest, that played a part in their creating it, while lauding them for relieving themselves of the money.

More than once, philanthropists have bestowed contributions on my organization and explained they were “giving something back.” They meant that by giving to us, they were paying some debt to society at large. It turns out that, with few exceptions, these philanthropists really had not done anything wrong.

They made money in their lives, to be sure, but they didn’t steal it. They took risks they didn’t have to.

They invested their own funds, or what they first borrowed and later paid back with interest. They created jobs, paid market wages to willing workers, and thereby generated livelihoods for thousands of families. They invented things that didn’t exist before, some of which saved lives and made us healthier. They manufactured products and provided services, for which they asked and received market prices.

They had willing and eager customers who came back for more again and again. They had stockholders to whom they had to offer favorable returns. They also had competitors and had to stay on top of things or lose out to them. They didn’t use force to get where they got; they relied on free exchange and voluntary contract. They paid their bills and debts in full. And every year they donated some of their profits to lots of community charities that no law required them to support. Not a one of them that I know ever did any jail time for anything.

So how is it that anybody can add all that up and still feel guilty? I suspect that if they are genuinely guilty of anything, it’s allowing themselves to be intimidated by the losers and the envious of the world, the people who are in the redistribution business either because they don’t know how to create anything or because they simply choose the easy way out. They just take what they want or hire politicians to take it for them.

Or like a few in the clergy who think that wealth is not made but simply “collected,” the redistributionists lay a guilt trip on people until they disgorge their lucre—notwithstanding the Tenth Commandment against coveting. Certainly, people of faith have an obligation to support their church, mosque, or synagogue, but that’s another matter and not at issue here.

A person who breaches a contract owes something, but it’s to the specific party on the other side of the deal. Steal someone else’s property and you owe it to the person you stole it from, not society, to give it back. Those obligations are real and they stem from a voluntary agreement in the first instance or from an immoral act of theft in the second. This business of “giving something back” simply because you earned it amounts to manufacturing mystical obligations where none exist. It turns the whole concept of “debt” on its head. To give it “back” means it wasn’t yours in the first place, but the creation of wealth through private initiative and voluntary exchange does not involve the expropriation of anyone’s rightful property.

How can it possibly be otherwise? By what rational measure does a successful person in a free market, who has made good on all his debts and obligations in the traditional sense, owe something further to a nebulous entity called "society"? If Entrepreneur X earns $1 billion and Entrepreneur Y earns $2 billion, would it make sense to say that Y should “give back” twice as much as X? And if so, who should decide to whom he owes it? Clearly, the whole notion of “giving something back” just because you have it is built on intellectual quicksand.

Successful people who earn their wealth through free and peaceful exchange may choose to give some of it away, but they’d be no less moral and no less debt-free if they gave away nothing. It cheapens the powerful charitable impulse that all but a few people possess to suggest that charity is equivalent to debt service or that it should be motivated by any degree of guilt or self-flagellation.

A partial list of those who honestly do have an obligation to give something back would include bank robbers, shoplifters, scam artists, deadbeats, and politicians who “bring home the bacon.” They have good reason to feel guilt, because they’re guilty.

But if you are an exemplar of the free and entrepreneurial society, one who has truly earned and husbanded what you have and one who has done nothing to injure the lives, property, or rights of others, you are a different breed altogether. When you give, you should do so because of the personal satisfaction you derive from supporting worthy causes, not because you need to salve a guilty conscience."

Top 400 taxpayers paid almost as much in federal income taxes in 2010 as the entire bottom 50%

From Mark J. Perry.

"

We hear all the time that “the rich aren’t paying their fair share of taxes” (you’ll find more than 1,000,000 Google search results for that phrase). Early last year Obama reiterated his belief that the wealthiest Americans still aren’t paying their “fair share” of taxes. Here’s an analysis using recent IRS data that suggests otherwise.

1. In 2010 (most recent year available), the top 400 taxpayers based on Adjusted Gross Income earned $106 billion collectively, and they paid $19.1 billion in federal income taxes at an average tax rate of 18% (see chart above).

2. In 2010, the bottom 50% of taxpayers, a group totaling 67.5 million Americans, earned collectively almost $1 trillion and paid $22.4 billion in federal income taxes at average tax rate of 2.4% (see chart above).

Bottom Line: A small group of 400 of America’s most successful earners in 2010, about the number of residents living in a typical apartment building in Washington, D.C., paid almost as much in federal income taxes as the entire bottom half of America’s 135 million tax filers, which is a population equivalent to the combined number of residents living in America’s 29 least populated states, plus the District of Columbia. What makes this disparity possible is the fact that 41% of individual income tax returns filed in 2010 had a zero or negative tax liability, according to The Tax Foundation. And a recent CBO study (featured on CD here) found that the entire bottom 60% of American households are “net recipient households” and received more in government transfers than they paid in federal taxes in 2011.

When you have only 400 Americans paying almost as much in federal income taxes as the entire bottom 50% of Americans filing income tax returns, I think we can dismiss any notion of the rich not paying their “fair share” of taxes. In fact, maybe the IRS should publish the names and addresses of the Top 400 taxpayers (or provide a forwarding service to protect anonymity), so that we can all send them “Thank You” letters to express our gratitude for shouldering such a disproportionately large share of our collective tax burden."

The performance of state-owned enterprises has been shockingly bad

See State capitalism in the dock from The Economist. Excerpts:

"Across the world, big, listed state-owned enterprises (SOEs) that were floated, or raised mountains of equity, between 2000 and 2010 have had a dismal time. Their share of global market capitalisation has shrunk from a peak of 22% in 2007 to 13% today. Measured by profits their decline is less stark, mainly because big Chinese banks continue to report inflated profits that do not accurately reflect their rotten books. Exclude them and SOEs’ share of earnings has slumped, too (see chart). It will probably fall further."



"In Russia, Gazprom, which the Kremlin once predicted would be the first firm to be worth $1 trillion, has crumpled: it is worth $73 billion today. India’s mismanaged state-owned banks command miserly valuations compared with their private peers. Since 2009 the Shenzhen stockmarket’s index, which is dominated by private firms, has rocketed past that of its rival in Shanghai, which is mainly made up of state companies, notes Sanford C. Bernstein, an analysis firm. Once, investors swooned at the rise of China Mobile, a state-owned operator. Now they admire Xiaomi, a wily private handset-maker. Shares in Vale, a Brazilian miner in which public-sector pension funds have a big stake, have lagged those of its private-sector peers, BHP Billiton and Rio Tinto, by over 40% in the past three years.

Overall, the SOEs among the world’s top 500 firms have lost between 33% and 37% of their value in dollars since 2007, depending on how one treats firms that were unlisted at the start of the period. Global shares as a whole have risen by 5%."

"But at the root of the underperformance is what looks like a huge misallocation of capital by SOEs. Given licence by politicians, and with little need to pacify stroppy investors, their capital investment surged, accounting for over 30% of the global total by big listed firms.

More than $2.5 trillion has been invested in telecoms networks, hydrocarbons fields and other projects by SOEs since 2007. Gazprom built an alpine ski resort for the winter Olympics. Etisalat, a telecoms firm in the United Arab Emirates, blew $800m on an operation in India whose licence was cancelled after an anti-graft inquiry. To counteract the global slowdown after 2007-08, state banks went on a lending binge in China, India, Russia, Brazil and Vietnam. The resulting bad debts are only now being recognised.

As the balance-sheets of SOEs have grown faster than profits, return on equity has slumped from 16% in 2007 to 12% today, less than the 13% achieved by private firms. China’s four biggest banks, with their inflated earnings, flatter this picture. Excluding them, SOEs’ return on equity falls to 10%. Cash returns to investors are poor: SOEs’ dividends and buy-backs are typically only 10-15% of the global total. Flabby and stingy, SOEs are now priced by investors at about their liquidation value."

"In the longer term, managers need to rethink how firms are run. Interviewed by The Economist in April, Xi Guohua, the chairman of China Mobile, talked of introducing incentive-based pay, awarding staff shares and establishing stand-alone units with freedom to innovate. “The old organisation will restrict our development and stand in our way, and we are fully aware of the urgency of such changes,” he said."

Black Friday Wal-Mart Protests Miss Mark On Pay Gap

From Mark Perry and Michael Saltsman.

"The "Black Friday" protests staged annually against Wal-Mart by the United Food & Commercial Workers Union are fast becoming a holiday tradition as loathed as an overcooked turkey or dry fruitcake. This year, organizers plan rallies and marches at more than 1,500 Wal-Mart stores around the country.

Activists will hand out literature to holiday shoppers warning that the Walton family is "hoarding" massive amounts of wealth.

On its Making Change at Wal-Mart (NYSE:WMT) website, the union says the company can "afford to pay higher wages," citing as proof the 2010 multimillion-dollar compensation of now-retired CEO Mike Duke.

While it's true that Duke was well paid for running one of the world's largest corporations, it's not true that his compensation — or the compensation of the company's new CEO Doug McMillon — have anything to do with the pay of the company's hourly employees.

The pay packages of top executives who head some of the world's largest companies have long been a point of contention for labor unions. The AFL-CIO maintains an Executive Paywatch website to trumpet a 331-to-1 gap between CEOs of 350 companies listed on the S&P 500 and the average U.S. worker.

Big Labor's CEO-to-worker pay ratio is problematic because it omits the compensation of the vast majority of executives. Our own comprehensive analysis of Bureau of Labor Statistics data shows that the actual pay gap is closer to five-to-one when all CEOs are considered.

Nevertheless, the talking point remains a potent one in the public opinion battle surrounding large, service-industry employers such as Wal-Mart. It's understandable: According to Morningstar, the company's six-member executive team earned combined compensation valued at $71 million in fiscal 2013.

That's a big number — but Wal-Mart is a big company. Its $470 billion in 2013 sales is equal to or greater than the entire GDP of developed countries like Taiwan and Austria.

Wal-Mart also has more than one million employees in the U.S. alone who depend on the managerial expertise of the company's top executives for their weekly paychecks.

A few bad decisions by the company's CEO and his executive team could mean the difference between a pay boost and a pay freeze — or, even worse, between more jobs and fewer jobs.

Despite a hypercompetitive retail market that intensifies all the time, Wal-Mart has impressively managed to stay at the top of the Fortune 500 annual ranking of US companies based on sales in every year since 2002.

If that market domination seems somehow automatic and independent of executive leadership, look at all of the large retailers who either faced closure or a steep drop in sales over the same time period — JCPenney (NYSE:JCP), K-Mart, Sears (NASDAQ:SHLD), and Borders, to name just a few.

What is overlooked or ignored by labor unions and anti-Wal-Mart organizations is that it takes highly compensated, superstar-level managerial talent to efficiently run a retail giant like Wal-Mart.

These activists then make an even bigger mistake by assuming Wal-Mart's top leaders are highly paid at the expense of lower wages for part-time hourly workers.

Consider: Wal-Mart employs roughly 600,000 part-time employees. If the company's executive team were replaced by lower-paid managers who forfeited 25% of a $71 million total compensation package, the extra take-home pay for part-timers would total just under $30 — per year, that is.

Assuming a 25-hour work week for 50 weeks a year, the pay cut at the top of the company yields less than 3 cents an hour in extra pay for Wal-Mart's part-time associates — and that's before taxes.

Even if we assume that Wal-Mart's executive team takes a 100% pay cut and distributes those earnings to employees — forfeiting salary, stock options, and everything else — the net benefit for the part-time workforce would be a pay bump of roughly 10 cents an hour before taxes.

Of course, there are other misguided means to boost the pay of Wal-Mart's hourly staff. For instance, this year's Black Friday protests will focus on creating a $15-an-hour "living wage."

But someone has to pay for that mandated raise, and Wal-Mart's low single-digit profit margin suggests the company itself is ill-equipped to do so.

That goes double for Wal-Mart's customer base, which relies on the "Save Money" promise in the company's slogan.

Instead, the store's employees would shoulder the cost of a "living wage" through reduced hours and fewer job opportunities — closing down the career pathway that allows today's cashiers to become tomorrow's store managers or corporate executives.

If you want to help Wal-Mart employees this year — or the employees of any other retailer, for that matter — the best thing you can do is go shopping. While labor union activists provide misleading talking points and empty solutions, you'll be providing the sales dollars that allow these companies to create more opportunities for the people who staff and manage the stores.

Unlike the Black Friday protests, that's a tradition that's actually worth continuing.

• Perry is a professor of economics at the University of Michigan-Flint and resident scholar at the American Enterprise Institute. • Saltsman is research director at the Employment Policies Institute."

New Field Study Confirms Neonicotinoids Have Little Impact on Honeybees

From Angela Logomasini of CEI. 

"As the Ontario provincial government in Canada considers policies that may force farmers to stop using, or drastically reduce use of, a class of pesticides called neonicotinoids, a new study shows why such policies are unlikely to do any good. Supposedly, limiting use of these pesticides will improve honeybee hive health, but such regulations will simply make it harder for farmers to produce an affordable food supply.

The study, which relies on data from actual field conditions, confirms that farmers can protect their crops using these chemicals without harming honeybee hives. Published in PeerJ, it assessed the impact of neonicotinoid-treated canola crops on hives that foraged among these crops in 2012. The researchers found no adverse impacts and very low exposure to the chemicals. The authors report:

Overall, colonies were vigorous during and after the exposure period, and we found no effects of exposure to clothianidin seed-treated canola on any endpoint measures. Bees foraged heavily on the test fields during peak bloom and residue analysis indicated that honey bees were exposed to low levels (0.5–2 ppb) of clothianidin in pollen. Low levels of clothianidin were detected in a few pollen samples collected toward the end of the bloom from control hives, illustrating the difficulty of conducting a perfectly controlled field study with free-ranging honey bees in agricultural landscapes. Overwintering success did not differ significantly between treatment and control hives, and was similar to overwintering colony loss rates reported for the winter of 2012–2013 for beekeepers in Ontario and Canada. Our results suggest that exposure to canola grown from seed treated with clothianidin poses low risk to honey bees.

Despite all the media hype about how these chemicals harm honeybees, these findings are not surprising.  Research condemning these chemicals has tended to focus on lab studies that overdose bees to see if pesticides affect hive health. But those studies have little relevance to real-life exposure to these chemicals in the field. The U.S. Agricultural Research Service’s Kim Kaplan explains that such studies have “relied on large, unrealistic doses and gave bees no other choice for pollen, and therefore did not reflect risk to honey bees under real world conditions.”

Over reliance on such studies creates a misleading impression about the risks to honeybees for many reasons. First, they ignore the fact that regular feeding or dosing of bees every day for a period of time is completely different than intermittent exposures from pollen in the field. As a result, even what some researchers claim are “field relevant” exposures are not really akin to real life exposures.

In fact, as this more recent study shows, when researchers study bees in real-life settings, they find no impacts from the chemicals and negligible levels of the chemicals in pollen, nectar and bee products, such as wax and honey. For example, Blacquière et al. summarize the research on such exposures in an article for Ecotoxicology published in 2012. The body of research, they explain, indicates that the exposures in pollen, nectar, and bee products are below levels that would pose acute or chronic toxicity. They also point out that, thus far, there are no field-relevant studies that demonstrate significant adverse impacts of neonicotinoids on honey bee hives. 

Last February, other researchers produced similar findings, as reported by Entomology today. These researches measured neonicotinoids in several crops grown from seeds treated with the chemicals. They could not find any traces of the chemicals on soybean flowers or cotton nectar. They found one neonicotinoid chemical in corn, but only in an insignificant amount. Dr. Gus Lorenz, a University of Arkansas who participated in this study concluded: “It’s not being expressed in the reproductive parts of the plants.”

So if public officials are looking to help honeybees survive better, they need to look elsewhere. Regulating neonicotinoids is unlikely to help and may force farmers to use other products that may pose greater risks to honeybees."

Regime Uncertainty Might Affect Productivity

Meanwhile, Uncertainty Growth is Booming at Cafe Hayek

"Here’s a letter to the Wall Street Journal:

The subheading describing Alan Blinder’s essay “The Unsettling Mystery of Productivity” (Nov. 25) reads “Since 2010 U.S. productivity has grown at a miserable rate.  And no one, not even the Fed, seems to understand why.”

Here’s a potential explanation: regime uncertainty.  Pioneered by economist Robert Higgs to explain the length and depth of the Great Depression,* the concept of “regime uncertainty” captures the difficulty of investors to foresee how their rights to their property (including to their profits) will be affected by government policies.  A rise in regime uncertainty reduces productive, private-sector investments - and a consequence of reduced investment is slower productivity growth.

Economists at Stanford and the University of Chicago measure “economic policy uncertainty” - a concept quite close to regime uncertainty.  Data on their website go back to 1985.  The average level of U.S. economic-policy uncertainty from 1985 through 2009 is 101.1, while the average level of such uncertainty from January 2010 through October 2014 is 140.7.  That is, the average amount of uncertainty (as measured using data found on the website Economic Policy Uncertainty) since the start of 2010 is nearly 40 percent higher than during the preceding 25 years.

Whether or not this heightened uncertainty explains the slowdown in productivity growth, such intense, government-created uncertainty cannot possibly be good for the economy.

Sincerely,

Donald J. Boudreaux
Professor of Economics
and
Martha and Nelson Getchell Chair for the Study of Free Market Capitalism at the Mercatus Center
George Mason University
Fairfax, VA  22030

* Robert Higgs, “Regime Uncertainty: Why the Great Depression Lasted So Long and Why Prosperity Resumed After the War,” The Independent Review, Spring 1997, Vol. 1: 561-590."

IRS data show that the vast majority of taxpayers in the ‘Fortunate 400′ are only there for one year

From Mark Perry.

"Frequency of Appearing in the Top 400 Tax Returns by Adjusted Gross Income, Tax Years 1992–2010

Number of Years in the Top 400	Number of Taxpayers in Group	Percent of Taxpayers Represented by Each Group
1	2,909	72.3%
2	504	12.5%
3	175	4.3%
4	126	3.1%
5	70	1.7%
6	55	1.4%
7	41	1.0%
8	25	0.62%
9	24	0.59%
10 or more	95	2.40%
Total	4,024	100%

The IRS just released a new report on the 400 taxpayers reporting the highest adjusted gross incomes (AGI) from 1992 to 2010, and the table above shows the frequency of individual taxpayers appearing in the “Fortunate 400″ (Table 4 in the IRS report). Of the 7,600 tax returns filed from 1992 to 2010 (400 highest earners in each year x 19 years), there were 4,024 unique, individual taxpayers, since obviously some taxpayers made it into the top 400 earner group in more than one year. The data show that:

1. Of the group of 4,024 top earners from 1992-2010, there were 2,909 individual taxpayers who made it into the “Fortunate 400″ only one time during the 19-year period. Those 2,909 one-timers represent 72.3% of the total 4,024 taxpayers, and therefore only 1,115 taxpayers that make up the rest of the group (27.7% of the total, or about one in four) were able to make it into the top 400 more than once between 1992 and 2010.
2. Moreover, since 2,909 earners made it into the top 400 once (72.3%), and another 504 (12.5%) made it into the top group twice between 1992 and 2010, that means that approximately 85% of the top earners made it into the “Fortunate 400″ group only once or twice (3,413 out of 4,024), and only about 15% of the remainder (611 taxpayers out of 4,024) were able to make it into the top group in more than 2 years out of 19.
3. There were only 95 taxpayers out of the 4,024 total taxpayers in the top earner group (2.4%) who were in the top 400 in 10 or more years out of 19.
4. Of the 7,600 total returns filed for this elite group over the 19-year period, 2,909 returns represented one-timers. So on average, in any given year between 1992 and 2010, about 38% of the returns filed by the top 400 taxpayer were one-timers who were not in the “Fortunate 400″ in any of the other 18 years.

 According to the IRS from its last report (now updated here with 2010 data), “The data reveal a mostly changing group of taxpayers over time. In fact, there were 4,024 different taxpayers represented in total for the 19-year period. Of these, a little more than 27 percent appear more than once and slightly more than 2 percent were represented in 10 or more years.”

MP: Whenever we hear commentary about the top or bottom income quintiles, or the top or bottom X% by income, or the top 400 taxpayers, a common assumption is that those are static, closed, private clubs with very little turnover – once you get into a top or bottom quintile, or a certain income percentile, or the top 400, you stay there for decades or life.

But reality is very different – people move up and down the income quintiles and percentile groups throughout their careers and lives. The top or bottom 1/5/10%, just like the top or bottom quintiles, are never the same people from year to year, because there is constant, dynamic turnover as we move up and down the income categories. As the new IRS data show, almost three out of every four members of the ever-changing, dynamic “Fortunate 400″ over the last 19 years were only “members” of that group for a single year."

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

I disagree with the editorial favoring an increase in the Texas state minimum wage ("A pay raise that pays dividends," Nov. 23). Some of the editorial was misleading and other parts used evidence very selectively.

First, let's look at why a person gets a job to begin with. If I offer you a wage of $10 per hour, I think you will generate at least that much in revenue. If you can't generate that much, I will offer less.

But with a legal minimum wage, anyone who is not capable of that level of productivity will never get hired. This raises a key question, which the editorial did not address, if workers get paid less than they are worth.

What business can afford to do so? Not many. Most employers are in competitive labor markets, especially retail and fast food, where minimum wage laws have their greatest impact.

If there is only one firm hiring labor, a monopsony, then workers get paid less than they are worth. But even Christina Romer, Obama's first chief economic advisor, said this is very rare.

The only conclusion is that a legally mandated higher wage will price some low skilled workers out of the market.

The editorial mentions some products whose prices have risen since 2009. So? The average annual increase in the Consumer Price Index was only 2.2%.

It also said "6.4 percent of Texas’ hourly workers earn minimum wage or less, well above the 4.3 percent nationally." But since December 2007 Texas has added 1.3 million jobs while all other states combined have 1.23 million fewer jobs.

Many other states have a minimum wage above the federal level. It looks like keeping ours at that level has helped create jobs.

Yes, some are low wage jobs. But Trinity University economics professor David Macpherson found that "two of three workers who take minimum-wage jobs obtain better-paying jobs within a year because of the job experience they gain."

By keeping the minimum wage low we give people a chance to get that first job which will soon lead to something better.

The editorial said it is a myth that raising the minimum wage is bad for business. It is hard to believe that raising labor costs 40% (about what an increase to $10 per hour would be) does not hurt business.

In fact, research on Canada suggests that in the long run there are job losses due to the new businesses that never get started because of the higher labor costs.

The paper also mentions that  "53 percent of all minimum wage earners are full-time workers and more than 88 percent are working adults."

But  economist Richard V. Burkhauser of Cornell University found 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 a good anti-poverty tool.

What about those workers who never get that first job from being priced out of the market? 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.

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.  

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.

Something to be thankful for: the real cost of a Thanksgiving dinner is 1.3% cheaper than last year, 21% cheaper than 1986

From Mark J. Perry.

"

From the American Farm Bureau Federation (AFBF):

The American Farm Bureau Federation’s (AFBF) 29th annual informal price survey of classic items found on the Thanksgiving Day dinner table indicates the average cost of this year’s feast for 10 is $49.41, a 37-cent increase from last year’s average of $49.04. The big ticket item – a 16-pound turkey – came in at $21.65 this year. That’s roughly $1.35 per pound, a decrease of less than 1 cent per pound, or a total of 11 cents per whole turkey, compared to 2013. The average cost of the dinner has remained around $49 since 2011.

The AFBF survey shopping list includes turkey, bread stuffing, sweet potatoes, rolls with butter, peas, cranberries, a relish tray of carrots and celery, pumpkin pie with whipped cream, and beverages of coffee and milk, all in quantities sufficient to serve a family of 10. There is also plenty for leftovers.

Foods showing the largest increases this year were sweet potatoes, dairy products and pumpkin pie mix. Sweet potatoes came in at $3.56 for three pounds. A half pint of whipping cream was $2.00; one gallon of whole milk, $3.76; and a 30-ounce can of pumpkin pie mix, $3.12. A one-pound relish tray of carrots and celery ($.82) and one pound of green peas ($1.55) also increased in price. A combined group of miscellaneous items, including coffee and ingredients necessary to prepare the meal (butter, evaporated milk, onions, eggs, sugar and flour) rose to $3.48.

In addition to the turkey, other items that declined modestly in price included a 14-ounce package of cubed bread stuffing, $2.54; 12 ounces of fresh cranberries, $2.34; two nine-inch pie shells, $2.42; and a dozen brown-n-serve rolls, $2.17.

“America’s farmers and ranchers remain committed to continuously improving the way they grow food for our tables, both for everyday meals and special occasions like Thanksgiving dinner that many of us look forward to all year,” said AFBF Deputy Chief Economist John Anderson said. “We are blessed to be able to provide a special holiday meal for 10 people for about $5.00 per serving – less than the cost of most fast food meals.”

A total of 179 volunteer shoppers checked prices at grocery stores in 35 states. Farm Bureau volunteer shoppers are asked to look for the best possible prices, without taking advantage of special promotional coupons or purchase deals. The AFBF survey was first conducted in 1986. While Farm Bureau does not make any scientific claims about the data, it is an informal gauge of price trends around the nation. Farm Bureau’s survey menu has remained unchanged since 1986 to allow for consistent price comparisons.

Some comments:

1. Compared to last year’s cost of $49.04 for a complete classic Thanksgiving dinner for ten people, this year’s cost of $49.41 for the dinner is only 0.75% (and 37 cents) higher (see blue line in chart). That compares to increases in overall consumer prices over the last year of 1.7% and average wages of 2.2%.

In addition to the 0.5% decrease in turkey prices compared to last year, the other items that decreased in price over the last year were: rolls (-0.5%), stuffing (-4.9%), cranberries (-3.3%), peas (-7.2%), and pie shells (-2.8%). The items that were more expensive this year compared to a year ago were sweet potatoes (+6.0%), pumpkin pie mix (+0.6%), milk (+2.7%), relish tray (+1.2%) and whipping cream (+8.1%).

2. Adjusted for inflation, the cost of a classic Thanksgiving dinner for ten this year is 1.3% cheaper than last year, 3.6% cheaper than two years ago and 5% cheaper than 2011 (see blue line in chart).

3. Compared to the cost of a Thanksgiving dinner of $62.30 in 1986 (in 2014 dollars), today’s classic turkey dinner for ten is almost 21% cheaper at $49.41.

4. Measured in time worked at the average hourly wage for all private production workers of $20.70 in October 2014, the “time cost” of this year’s classic turkey dinner for ten is only 2.39 hours, down by 1.2% from 2.42 hours last year and down by 4.7% from 2.50 hours in 2012 (see bottom chart). Compared to 1986 when the average American would have worked 3.22 hours to earn the income necessary to purchase the turkey dinner for ten, the “time cost” for a worker today (2.39 hours) is almost 26% lower.

5. Cost conscious shoppers can buy the same classic Thanksgiving meal at Walmart for only $32.64 (see top chart above), a savings of 34% compared to the AFBF national average, according to this press release from Walmart. In hours of time worked at the average hourly wage for private production workers, that would be a “time cost “of only 1.58 hours for one worker to purchase a holiday feast for ten people at Walmart, a truly amazing bargain.

Bottom Line: The fact that a family in American can celebrate Thanksgiving with a classic turkey feast for less than $50 and at a “time cost” of only 2.39 hours of work for one person (and only $32.64 or 1.58 hours of work for Walmart shoppers) means that we really have a lot to be thankful for on Thanksgiving: an abundance of cheap, affordable food. Compared to 1986, the inflation-adjusted cost of a turkey dinner today is 21% cheaper, and 26% cheaper measured in the “time cost” for the average worker. Relative to our income and relative to the cost of food in the past, food in America has never been more affordable than it is today.

Bon appetit!"

“Outsourcing” Makes Us Richer

From ROBERT P. MURPHY of FEE. 

"This short video, put out by the Million Jobs Project, currently has more than 3.7 million views. It claims that US producers have been outsourcing jobs abroad in order to fatten their profits. It urges viewers to increase their purchases of American-made products by 5 percent, since this shift would ultimately create “a minimum” of a million new jobs for Americans. Unfortunately, everything about this video is wrong.

In the first place, the video takes for granted that it is a good thing if an American gets a job at the expense of a foreigner. After all, the whole point of urging viewers to spend more money on American products is that this will cause “insourcing.” Firms will lay off foreign workers and bring those jobs back home to the United States. But other things equal, why should we hold this ethical view? The question is even harder to answer once we consider that the foreign workers who, according to the video producers, will lose their jobs are probably extremely poor compared to the Americans who will get the jobs. Since when is it a noble thing to put a desperately poor person out of work?

This obvious (but unstated) national prejudice of the video provoked the following unintentionally ironic statement in the comments at YouTube: “I am Canadian but I always try to buy north american [sic] made when possible.” I wonder if this Canadian actually means all of North America, including Mexico? Or does he just mean Canada and the United States? If he feels kinship with the members of his continent, what about the entire Western Hemisphere? Should he “buy Western” to keep jobs for his buddies in Brazil, rather than shipping them to those parasites in Thailand? Going the other way, should Americans also try to increase their purchases of items made in state by 5 percent, so that Texans keep jobs in Texas, while Floridians keep jobs in Florida? Of course I'm kidding; I am trying to show the arbitrariness of adjusting one’s spending to “create jobs at home.”

Beyond the fuzziness of the value judgment involved, the fundamental error in the video is the notion that there are a fixed number of jobs in the world. This isn’t so. If an owner closes a factory in the United States and opens a factory in India, he has only “shipped jobs abroad” in the same way that a correspondent can “ship a pen pal abroad” by switching writing partners. Other employers can rush in to offer jobs to the newly laid-off workers, or the workers can start their own businesses and become self-employed.

Indeed, so long as the government (or a union threatening violence with impunity) doesn’t artificially prop up wages and salaries, there is really no problem of unemployment in the market economy. Wages and prices eventually adjust so that everybody who wants a job can get one. Some workers might complain that their income is too low, but that’s a different problem from truly being unable to get hired at all.

To see the relevance of this point, let’s consider exactly how the phenomenon of outsourcing occurs. As the video describes it, US employers realized “about 30 years ago” that they could hire foreign workers to do the same jobs at much lower wages, so they relocated their production facilities abroad. This assertion raises the question: Why didn’t employers just cut US wages down to what the foreigners were asking?

The answer is that US workers won’t take such low-paying jobs because they have better options. For example, suppose Americans are originally employed in a TV factory in Tennessee, making $16 an hour. The owner of the plant realizes he can relocate it to India, where he can hire workers who are half as productive (meaning they only make half as many TVs per hour) but who are willing to work for $4 an hour. He would never bother relocating if the American workers would simply accept a pay cut to $8 an hour. (The American workers make twice as many TVs per hour, remember.) Suppose they won’t do that, because their next-best job option is to work in a warehouse for $10 an hour. In this case, with the numbers I’ve invented, the original factory owner would “ship jobs to India,” not because of some horrible flaw in the labor market, but because American workers had better things to do than make TVs for $8 an hour. It was more efficient for those workers to go into the warehouse sector and for the Indian workers to make the TVs.

Notice also the point about government intervention. If we cut all of the numbers in half from my scenario about TVs, then all of a sudden the outsourcing would seem to cause US unemployment. Specifically, suppose the American workers originally made TVs in Tennessee and were paid $8 an hour. Then the owner of the factory realized the Indian workers were willing to make TVs for $2 an hour. In this case, the Americans (who are still twice as productive) would need to cut their asking wage to $4 an hour to stay competitive, and their other option is to work at a warehouse where they would generate $5 an hour in value for their boss. Alas, in this scenario, the factory owner still “ships jobs to India,” but the laid-off Americans are stuck: It is illegal for them to work at the warehouse for $5 an hour, because that would violate minimum wage laws. Thus, they really have been thrown out of work, but the true culprit was government intervention, not outsourcing per se.

“Outsourcing” is simply a manifestation of the more general phenomenon of trade between countries. As a general rule, giving individuals the freedom to trade with whomever they wish, around the globe, maximizes the “real income” of the groups involved.

Looking at the issue from the other direction, we can say that if the US government imposes a barrier to trade — such as restricting imports from a particular country — then it might make some American workers richer, but only by making the average US consumer poorer. Furthermore, the losses to the consumers outweigh the gains to the “protected” workers, meaning the country as a whole is poorer when the government enacts a trade barrier. There is an entire literature of commentary on the virtues of free trade, demonstrating these truths in various ways. For those who have never read it, I highly recommend Frédéric Bastiat’s famous satirical essay, “Petition of the Candlemakers.” For those readers who can invest more time, I refer them to chapters 8 and 19 of my textbook Lessons for the Young Economist (available online for free here), which explains the standard case for free trade in terms of what economists call “comparative advantage.”

The general logic of the benefits of free trade applies to outsourcing; a particular instance of outsourcing will (obviously) hurt the domestic workers involved, but it will shower on other Americans benefits that more than offset the loss. Immediately, the owners of the outsourcing firm benefit in the form of higher profits (because they’ve cut their wage bill). But the forces of competition will soon cause those cost savings to show up as lower prices for American consumers. Indeed, the video’s producers implicitly admit this when they acknowledge that their recommendation to buy 5 percent more American-made products would be more expensive for consumers.

The logic of free trade is irresistible once a person takes the first step on its path. By effectively paying foreign workers with US dollars when they send us TVs, clothes, and other goods, we give them the purchasing power to buy American exports such as wheat and aircraft components. The opposite holds as well: If American consumers reduce their purchases of foreign-made TVs and other goods, then those foreigners will cut back on their purchases of American wheat and so forth. Ultimately, the video’s suggestion to “buy American” won’t create more American jobs in total, but instead will merely rearrange employment among sectors, making Americans poorer in the process.

To be fair, the video’s narrator does try to defuse the standard economist response to his analysis, starting around the 1:05 point. The narrator says that Americans won’t simply find other, “thinking up” jobs to replace the manufacturing jobs that have been outsourced, because those “thinking up” jobs need to be outsourced as well, in order to stay close to the manufacturing process. Whether or not this is actually true — after all, there are plenty of “thinking up” jobs being created in Silicon Valley and elsewhere in the United States — it misses the more basic point: There is no reason that the United States should manufacture a certain product within its borders for the rest of time.

As foreign governments reduce their own institutional barriers to trade, and as communication and shipping costs fall, it only makes sense that production becomes more globally integrated. To insist that Americans favor products “made in the USA” is as arbitrary and impoverishing as people in Alaska insisting that they only eat oranges grown in Alaska (in greenhouses, presumably). There are serious obstacles to prosperity for the average American worker, but the problem isn’t “outsourcing.” The problem is government mandates and restrictions that hinder the operation of the market economy."

Taxpayer-Funded Green Ministries in Prince George's County Violate the Constitution

From Hans Bader of CEI.

"Reporters like separation of church and state, unless it’s progressives violating it. Then, they lose interest in the concept. A recent Washington Post story cheerily reported on churches getting exemptions from a state-mandated stormwater fee (Maryland’s “rain tax”) in exchange for taking “green” positions, in the progressive bastion of Prince George’s County, Maryland. The story did so without even mentioning the serious issues that raises under the Establishment Clause and the First Amendment.

This sets a dangerous precedent. As legal commentator Walter Olson asks, “Since when does government get the power to cut churches tax breaks in exchange for their agreement to preach an approved line?”
This violates freedom of speech under the unconstitutional conditions doctrine. Under Supreme Court precedent, you can’t condition a valuable government benefit like a tax exemption on someone’s speech.

Speiser v. Randall, 357 U.S. 513 (1958), was a Supreme Court case addressing California’s refusal to grant a veteran a tax exemption because he refused to sign a loyalty oath as required by a California law. The Supreme Court ruled that the condition violated the First Amendment. The Supreme Court has reaffirmed this “unconstitutional conditions” doctrine in many other cases and contexts, such as in Dollan v. City of Tigard, 512 U.S. 374, 385 (1994).

Even if this did not violate the First Amendment’s free speech clause, it would still be unconstitutional. This government meddling in the content of sermons constitutes undue entanglement and religious favoritism in violation of the Establishment Clause and the religion clauses of the Maryland and federal constitutions. Government officials are not supposed to even indirectly meddle in things like the “voice of the church,” even through generally-applicable, non-discriminatory labor or employment laws (which this viewpoint-discriminatory reward for green ministries manifestly is not, making it patently unconstitutional). See, e.g., EEOC v. Catholic University of America, 83 F.3d 455 (D.C. Cir. 1996) (appeals court ruled that EEOC could not enforce even generally-applicable employment laws so as to regulate who religious university employed as the “voice of the church” in matters of theology, since that would entangle church and state, and violate religious freedom); Larkin v. Grendel’s Den, 459 U.S. 116 (1982) (Supreme Court declared that land-use provisions that would be valid in secular context violated the establishment clause when they conferred a benefit on churches suggestive of a symbiotic union of church and state).

Selective concern for separation of church and state is nothing new. The Supreme Court unanimously ruled against the Obama administration’s attempt to regulate hiring of clergy and teachers of theology in the 2012 Hosanna-Tabor case, thereby preventing bureaucratic entanglement in internal church affairs. Although its ruling protected separation of church and state, it was denounced by many self-proclaimed supporters of separation of church and state. Those hypocritical progressive groups had filed amicus briefs with the Supreme Court seeking to give federal bureaucrats the ability to micromanage churches’ hiring of clergy and other “voices of the church.”"

Have changing household composition and retirement caused the decline in median household income?

From Mark Perry.

"

One of the most frequently reported economic trends is the gradual decline in US real median household income from its 1999 peak of about $57,000 to below $52,000 in each of the last three years (see blue line in top chart above). We hear a number of reasons from politicians and pundits for the decline in median household income over the last decade, mostly reasons that involve a narrative about economic stagnation and growing inequality caused by the progressives’ usual suspects: gains in worker productivity, income and wealth going to corporations and “the rich” instead of being shared by average workers; failure to increase the minimum wage or pass “living wage” laws; the combined effects of globalization, free trade and outsourcing putting downward pressure on middle-class incomes in America, and other variations of economic pessimism. Former President Bill Clinton recently offered his three reasons for stagnant median household income that include not raising the minimum wage and excessive corporate greed.

But there are some other very obvious, but mostly overlooked, factors that could easily explain why median household income has declined over the last decade that have nothing to do with economic stagnation: demographic changes in the composition of US households. AEI’s Alex Pollock addressed this issue recently in his essay “If income is going up, can median household income go down? It’s possible.” Here’s how Alex frames the issue:

One of the most commonly cited numbers in discussions of inequality is the trend in median household income, often used as if it settled the issue. Using median household income poses a fundamental problem, however. It conflates two measurements — changes in the composition of households and changes in income — and thus can easily mislead us.

Has the composition of households in America been changing? Obviously, it has. The percent of married couple households has fallen from more than 60 percent in 1980 to less than 50 percent in 2010. One-person households have risen from 23 percent to 27 percent of households in this period. Shifting from two-earner households to one-earner households lowers the median household income, even if everybody’s income is the same as before [or rising].

Alex provides a series of hypothetical examples showing how simple household demographic changes can result in rising individual incomes while at the same time the median household income is falling. For example, if there is a shift from two-earner, married households to one-earner single households as a result of divorce, the overall median household income could fall even when income is increasing for all individuals in the new mix of households with a greater share of single households.

Alex’s key point is that when demographics and household composition are dynamically changing, individual income and median household income can naturally move in opposite directions. The most frequent mistake, according to Alex, is to look at median household income over time assuming that household demographics are static. And that is precisely the mistake made in almost all of the discussions about median household income, and that leads to a distorted and inaccurate conclusion about why median income is falling.

One example of a major dynamic change in household composition is the significant increase in the share of US households with no earners, from fewer than 20% of all US households in 1980 to 23.7% of households in 2013 (see blue line in bottom chart above, Census data here from Table H-12). Likewise, the share of single-earner households has also increased from 33.2% in the early 1990s to above 37% for the last five years (see red line). In contrast, there’s been a decrease in the share of US households with 2 or more earners from above 46% of all households in 1989 to fewer than 40% of US households in every year since 2010 (see brown line in bottom chart above).

In summary, over the last several decades, there’s been an increasing share of no-earner, single-parent and single-earner households and a decreasing share of married and two-or-more-earner households. That major demographic shift has likely depressed median household income significantly in the last decade, even though it’s possible, as Pollock shows, that the income of individual working Americans could be rising.

Another key demographic shift is the increasing number of retired Americans as a share of the adult population based on Social Security data. As the red line in the top chart above shows, US retirees represented a pretty stable 15% share of the US population from 1990 to 2008. Starting around 2008 when the early “baby-boomers” – those born in 1946 — reached early retirement age of 62, the share of retirees started increasing from less than 15% of the adult population in 2007 to more than 16.6% in 2013.

In the five year period between 2008 and 2013, the number of retired Americans increased by 5.6 million, which was the largest five-year increase in US history, and more than double the 2.5 million increase in the previous five-year period. Given that wave of recent retirements, there have been millions of older, experienced, highly-paid workers going from their peak earning levels to a much lower retirement income that would typically include Social Security payments, pensions, and distributions from retirement accounts. As those millions of retirees are replaced in the workforce by younger, less experienced, lower paid workers, median household income could be falling even though the average income of working Americans could be rising.

It’s probably no coincidence that the recent increase in retirees, both in absolute numbers and as a share of the adult population, along with the other demographic changes described above, has naturally coincided with a decline in median household income. It would be hard to imagine that an aging population with a significant increase in the number and share of retirees, wouldn’t depress median household income, for purely demographic reasons.

Bottom Line: Most explanations of the recent decline in US median household income are based on some variation of a narrative of economic stagnation, rising inequality and pessimism. But what is almost always overlooked are the very significant demographic changes that have taken place in the composition of US households over time that would significantly impact the income of the median US household. Taken together, a) the increase in the share of no-earner, single-earner, and single-parent households, b) the increase in the number and share of retirees, along with c) the decline in the share of two-earner and married households, would logically and necessarily depress the income level of the median US household.

In summary, the composition of US households is not static, fixed and permanent; rather it’s dynamic, evolving and ever-changing. Discussions on changes in median household income over time that ignore the changes in household composition over time will always be incomplete, distorted and misleading. Perhaps the decline in median household income this century is not a narrative of economic pessimism and stagnation after all, but a more upbeat story of a greater number of Americans living longer lives, and enjoying periods of time in retirement that were never possible until this century."

Don't treat climate change “as a moral issue – a matter like civil rights”

From Cafe Hayek.

"Here’s a letter to the Washington Post:

David Ignatius proposes that climate change be treated “as a moral issue – a matter like civil rights” (“The moral issue of climate change,” Nov. 19).

This comparison fails.  The core concern that sparked the civil-rights movement was simple: government-mandated racial segregation and discrimination wrongly prevented each African-American from pursuing his or her life’s goals on equal footing with white Americans.  Neither the existence nor the baleful effects of such barriers was ever in doubt.  In addition, destroying those barriers was both a relatively straightforward procedure and, by any remotely acceptable ethical standards, unambiguously the right thing to do.

Climate change is completely different.  Legitimate debate continues over the magnitude of impending temperature change and – despite the predictions of the novel that inspired Mr. Ignatius’s call for a moral crusade against climate change – debate continues over the likely consequences of any such change.  Legitimate debate also rages over the effects of government efforts to reduce carbon emissions.

Ending Jim Crow simply got government out of the way of peaceful and productive human interactions.  In contrast, empowering government to address climate change complicatedly puts government in the way of market interactions – interactions that have generated what Nobel economist  Edmund Phelps calls “mass flourishing”* on a scale unprecedented in history.  Given governments’ dubious record of intervening into economies – and given free markets’ impressive record of raising the living standards of ordinary people and of adapting to change – to fuel with moral fervor government efforts  to intervene on the climate front would be a grave and dangerous error.

Sincerely,
Donald J. Boudreaux
Professor of Economics
and
Martha and Nelson Getchell Chair for the Study of Free Market Capitalism at the Mercatus Center
George Mason University
Fairfax, VA 22030

* Edmund S. Phelps, Mass Flourishing (Princeton: Princeton University Press, 2013)."