Minimum wage hike has driven the wages of teen employees down to $0.00

Look at this chart carefully. This is NOT teen unemployment – it is the GAP between teens and the population.

Yesterday’s September labor market report was lousy by any measure, with 263,000 lost jobs and the jobless rate climbing to 9.8%. But for one group of Americans it was especially awful: the least skilled, especially young workers.

Washington will deny the reality, and the media won’t make the connection, but one reason for these job losses is the rising minimum wage.

Earlier this year, economist David Neumark of the University of California, Irvine, wrote on these pages that the 70-cent-an-hour increase in the minimum wage would cost some 300,000 jobs. Sure enough, the mandated increase to $7.25 took effect in July, and right on cue the August and September jobless numbers confirm the rapid disappearance of jobs for teenagers.

According to new numbers from the Labor Department in 2008 only 1.1% of Americans who work 40 hours a week or more even earned the minimum wage. In other words, 98.9% of 40-hour-a-week workers earn more than the minimum. The data also show that teenagers are five times more likely to earn the minimum wage than adults. Minimum wage jobs are nearly all first-time or part-time jobs, and an estimated two of every three minimum wage workers get a pay raise within a year on the job.

Study after study reveals that there are long-term career benefits to working as a teenager and that these benefits go well beyond the pay that these youths receive. A study by researchers at Stanford found that those who do not work as teenagers have lower long-term wages and employability even after 10 years. A high-wage society can only come by making workers more productive, and by destroying starter jobs the minimum wage may reduce long-term earnings.

Another recent study across 17 OECD nations, also by Messrs. Neumark and Wascher, found a highly negative association between higher minimum wages and youth employment rates. But it also concluded that having a starter wage, well below the minimum, counteracts much of this negative jobs impact. If Congress won’t suspend its recent minimum wage hike, it should at least create a teenage wage of $4 or $5 an hour to help put hundreds of thousands of teens back to work. White House chief economic adviser Larry Summers has endorsed this in the past. Without this change, expect the teen unemployment to remain very high for a long time.

The wonder of it all is that liberals still call “progressive” a policy that has driven the wages of hundreds of thousands of the lowest skilled workers down to $0.00.

Bobby Jindal: not all politicians are hopeless

Governor Jindal plans to steer working-poor Medicaid recipients out of the current “fee for service” program, where the state pays a set rate for all health-care charges (some 54 million this year). Instead, they’d choose among private managed-care plans, with Louisiana paying a fixed per-patient amount, adjusted for health risks. Essentially, Mr. Jindal wants to use Medicaid dollars to fund something like private insurance. That way, physicians and hospitals will be compensated for outcomes — rather than volume of visits and procedures — and get incentive payments for good performance.

Such a “defined contribution” plan is one way to wrestle run-amok health costs back under control and spend more responsibly. It isn’t a new idea, but it is a good one. Congressional Republicans passed a similar reform in 1995 for Medicare, which Bill Clinton vetoed — only to have his own bipartisan commission endorse it in 1999.

Bobby Jindal has been in the Louisiana governor’s seat for just a year now — but what a difference from the typically corrupt politics of that state. His popularity polling was running 77% after his first six months in office. There’s a bit of a Jindal profile at The Nation.

Has the US Election 'Realigned' the Country?

Evidently not, according to Jennifer Marisco, who concludes

Put another way, Mr. Obama got about 40,000 fewer votes in Ohio than John Kerry got four years ago. Mr. Obama carried the state when Mr. Kerry did not because Republicans stayed home. Nationally, the anticipated record turnout didn’t materialize. About the same percentage of registered voters came out this year as in 2004. And was that a realignment year?

In the same way that 1980 did not yield a generation-long period of Republican dominance, those on the right can take heart that 2008 does not represent the beginning of an era of Democratic supremacy.

We will soon learn whether we can rely on our "traditional allies"

For seven years of war, we have been told that our “traditional allies” would help us more if only our president were more consultative and less, well, detestable. Well, we are about to learn whether that hypothesis is true, or if it has been nothing more than a Democratic attack point and a nifty excuse for other countries to abdicate their responsibilities to the Atlantic alliance. Thomas Friedman calls them out in his column this morning:

To all those Europeans, Canadians, Japanese, Russians, Iranians, Chinese, Indians, Africans and Latin Americans who are e-mailing their American friends about their joy at having “America back,” now that Obama is in, I just have one thing to say: “Show me the money!”

More TigerHawk and Tom Friedman.

Economists sign petitions for McCain, while very worried about Obama

ADAGIO has just re-entered the cybersphere in San Francisco — the destination of our four day passage from Victoria. So there is much catching-up to do, such as these links offered by Harvard economist Greg Mankiw. Any comments would be appreciated:

A list recently released by the McCain campaign. It includes five Harvard professors.

Some blog readers may ask, why didn’t I sign? I am not particularly fond of Obama’s proposed tax hikes or his apparent retreat from free trade. (See this article of mine.) But I thought the statement in the group letter that “his proposals run a high risk of throwing the economy into a deep recession” was a tad too hyperbolic for my tastes.

Update: A reader alerts me to a longer list of pro-McCain, anti-Obama economists here.

UPDATE: now that we have Internet access I followed Greg’s link, finding these collective statements by an obviously very concerned group of economists:

Our Statement on Senator McCain’s Economic Plan, 535 Signatories so far

Our Statement on Senator Obama’s Economic Plan, 364 Signatories so far

I don’t know every economist who signed, but scanning the signatories I noted such as Harvard’s Robert Barro, Nobel laureate and one of the very best researchers on policies that produce strong economic growth. Similarly, U of Chicago’s Robert Lucas. These gentlemen are the cream of the crop in the area that means the most to citizens and investors.

The site’s issues page is also a resource.

What does this all mean? First, it looks to me that McCain isn’t very interested in economics, at least as to theory. If he was a student of basic economics, he would never have come out with the silly “gas tax holiday” plank. But McCain’s voting record and public statements prove that he is a solidly in the free market camp. So his political philosophy is right, and I am comfortable that he will support basically sound pro-growth policies. True, he is not a Thatcher, and has a tendency to think in terms of federal government “solutions”. So I don’t expect McCain to fight for a smaller government overall.

Obama seems to be solidly in the central-planning, top-down government controlled economy camp. Every Obama policy I’ve seen, from taxation to trade to health care has been very bad policy. His very short voting record is horrible — by every measure he is the most left-wing presidential candidate ever. I was hopeful when Obama took on Jason Furman as an economic advisor — but that was about six months ago, and I’ve seen no evidence of better policy positions.

Bottom line: Obama together with a Democratic Senate and House is a very scary prospect. What is the probability that Obama would lead a realistic reform of the entitlements train wreck? McCain is fundamentally a risk-taker. I could see him taking on the reform leadership, and finding a way to cut a deal with the Democrats that would offer some hope.

The worst case I can see with McCain is a deadlock with Congress. That probably would mean less government interference in the economy.

Stock markets better with a Democratic president?

No – and the neither do Republican presidents correlate with better equity returns during their terms in office. Former chair of the Council of Economic Advisors Greg Mankiw explains:

A reader asks me what I think about this graphic from the NY Times, which purports to show that the stock market does better when a Democrat is in the White House.

My interpretation: It is meaningless.

I can imagine good reasons for being a Democrat (see this link), but stock market returns are not one of them. First of all, the stock market is hardly a barometer of economic well-being. Second, as David Backus wisely points out, the President’s policies are only a small part of what drives the economy. Third, it is nearly impossible to get the timing right to do this kind of comparison.

Let me explain this last point.

According to the efficient markets hypothesis, financial markets are forward-looking. If so, you would expect the entire impact of a candidate’s election on the market to occur on election day, or maybe even during the days leading up to the election, as the market learns about the party of the next administration. By the time the new President takes office, the news has been fully priced in, and it will not show up in returns during his term.

But suppose you thought that stock investors were not forward-looking, or did not understand the differences between the parties. If so, the stock market would respond to economic events only as they unfold. In that case, you would have to wonder whether the timing is off in the other direction. Does the President influence the direction of the economy from the first day he takes office? Do the effects of his policies disappear the day after he leaves office? Of course not. Policy influences the economy with long and variable lags.

The bottom line: Trying to isolate the differences between the parties using this kind of stock market data is silly at best.

Addendum: Related readings here and here. Meanwhile, a PhD candidate in economics suggests this explanation:

Suppose what New York Times finds is econometrically correct. They might have just found another risk factor for abnormal returns. Democrats sitting in the White House do bring about more risks in stock holdings. Therefore, investors demand higher return to compensate for extra risks they are bearing.

Census Bureau — typical government incompetence

…At a recent Senate Commerce hearing, Oklahoma’s Tom Coburn put this in perspective: “So we’re still going to pay $600, four times what the American [tax]payer should be paying, for something that can be done on a $150 BlackBerry.” He added: “A $400 iPhone can do twice as much as the $600 handheld. You could buy iPhones and do all of this.”

We would add that FedEx and UPS use handheld computers to track more than 22 million packages, all over the world, each and every day. Their computers work because their business depends on it. So you can know, up to the minute, when your Amazon shipment left Memphis, when it touched down in Parsippany and when it got loaded on the truck for delivery to your house. And yet the Census Bureau, with a decade to plan for it and hundreds of millions of dollars to spend, could not come up with a handheld computer to record the ages, races and addresses of those who don’t respond to the mailed census survey.

We wish we could be shocked by this fiasco. But no one who’s followed the IRS’s decades-long failure to upgrade a computer system built in the 1960s, or the Federal Aviation Administration’s reliance on vacuum tubes in the age of global positioning systems, can really pretend to be surprised.

At the Senate hearings last month, Commerce Secretary Carlos Gutierrez was all apologies. But in the end, the Census will get the extra $3 billion it now “needs” to make up for a decade-long failure to perform. As happens all too often in Washington, failure will be “punished” with more money to fix what could have been done right the first, or even second, time.

Even Harris Corp., which was given the original $600 million contract for the Census computers, will now rake in at least $1.3 billion for providing one-third as many handhelds, which will do only one-half the work originally intended. Everyone seems to agree that Harris is not to blame, but we can’t imagine the company would prosper in the private sector with a similar result.

We keep hearing that the era of big government is back, and all of the presidential candidates are promising that Uncle Sam can and should do so much more for us. Here’s a radical idea: Before it takes on more obligations, maybe the government should first have to show that it is capable of doing in remotely competent fashion what the Constitution has obliged it to do for some 220 years.

Read and weep… Not mentioned were thousands of examples of equally shocking incompetence. E.g., after 25 years of flagrant waste the FBI’s computer systems are not up to the minimum standards required by a profitable used car dealer.

Christopher Hitchens

His own loss of faith came in slow degrees. “If someone had asked me my political alignment, well into the 1990s, I would have said that I was a socialist and a Marxist.” Then he found himself writing to students of his and this process developed into the 2001 book Letters to a Young Contrarian. As he surveyed the 30 years since the catalysing effect of 1968, he says he was forced to admit that there was no longer a socialist international movement, nor even a socialist critique that might help to revive one.

“So what are you doing calling yourself a socialist?” he asks. “All you’re doing is making sure that people don’t confuse you with a liberal—which I’d always considered a position of lily-livered weakness. But that makes it an affectation. So I felt it fall away. I didn’t repudiate it, I didn’t get poisoned by it, I didn’t hate it and I didn’t have a Damascene moment about it. But I did notice that those who do think they’ve got a critique of capitalism turn out to be reactionaries. They prefer feudalism or agrarianism; they’re pre-capitalists. Marxism at least has a theory of development and innovation. And global capitalism now seems to be the only thing that is revolutionary. That’s my Marxist way of looking at it.”

Many of Hitchens’s critics conclude that this is his way of saying he’s a neoconservative. His reply is that he doesn’t consider himself to be “any kind of conservative.” He would rather just be called a human rights hawk. “There should be a word for people who believe US power can and should be used to oppose totalitarianism,” he says. With no faith left in the French and Russian revolutions, or the proletariat, all that now remains is his idea of America as “the last revolution in town”—its spirit of liberty revived by the struggle to transform the middle east.

Alexander Linklater has researched and written an excellent mini-biography of Christoper Hitchens — the cover article for the latest Prospect — the result of three days of interviews in Washington DC.

His main business, he claims, has been to ally himself with what was originally an underground movement of Sunnis, Shias and Kurds—all working towards the overthrow of a latter-day Stalinist monster. “I have felt like I used to in the 1960s,” he says, “working with revolutionaries. That reminds me of my better days.”

When Qubad Talabani arrives at the apartment, the discussion is close and intimate. They discuss his father’s weight, before moving on to the problem of Turkish incursions into northern Iraq. A Washington lobbyist for the Kurdish regional government, the young Talabani is formidably smart. They discuss L Paul Bremer’s big mistake—not the disbanding of the army, Qubad argues, which was in fact his main achievement, but the failure to provide payoffs and pensions. Hitchens talks about the evidence, some of it apparently furnished by Qubad’s brother, that Saddam’s ties to al Qaeda preceded the invasion. Qubad discusses the need to create a federal Iraq. It’s not hard to see in the young Talabani the kind of secular and cosmopolitan vision of Iraq that Hitchens has tried to cling on to as the threat of Sunni-Shia civil war has darkened. Hitchens claims allies among several Iraqi factions, but his first real contact came in the early 1990s, when “trudging around northern Iraq” researching an article for National Geographic on Saddam’s use of chemical weapons against the Kurds. And it was their struggle with which he originally identified.

Highly recommended

Venezuelan student leader wins the Milton Friedman Prize for Advancing Liberty

The Milton Friedman Prize Goes to a Hero:

The 2008 Milton Friedman Prize for Advancing Liberty has been awarded to Yon Goicoechea. Goicoechea was a key leader of the Venezuelan student movement that ralled the country to vote down Hugo Chavez’s referendum on a constitutional change that would have turned Venezuela into a socialist dictatorship. More on Yon here, as well as information on the gala May 15 dinner in New York at which the Prize will be presented.

It’s interesting to reflect on the diversity of the first four recipients of the Prize. The first Prize in 2002 went to Peter Bauer, presumably in recognition of his lifelong scholarship on development economics and the sources of wealth. (I say “presumably” because the Selection Committee doesn’t formally explain its decisions. But the announcement of the award referred to “his pioneering work in the field of development economics, where he stood virtually alone for many years as a critic of state-led development policy with its emphasis on central planning and external foreign aid.”)

The second Prize went to Hernando de Soto, an author of two books on economics but more importantly a tireless crusader and activist on behalf of poor people and their need for property rights.

The third Prize, in 2006, went to Mart Laar, the youngest prime minister in the history of Estonia, who led his country out of the Soviet Union and into the European mainstream. He slashed taxes and transfer payments, privatized state agencies, liberalized international trade, and created one of the fastest-growing economies in the world, dubbed the “Baltic Tiger.”

And this year the Prize goes to a young man who is not–not yet, at least–a scholar, an author, or an elected official. He’s just a law student who stood up when others wouldn’t and helped to create a movement that prevented a strongman from becoming a dictator.

I think the diversity of the recipients reflects the many ways in which liberty must be defended and advanced. People can play a role in the struggle for freedom as scholars, writers, activists, organizers, elected officials, and many other ways. Some may be surprised that a Prize named for a great scholar, a winner of the Nobel Prize in Economics, might go to a political official or a student activist. But Milton Friedman was not just a world-class scholar. He was also a world-class communicator and someone who worked for liberty in issues ranging from monetary policy to conscription to drug prohibition to school choice. When he discussed the creation of the Prize with Cato president Ed Crane, he said that he didn’t want it to go just to great scholars. The Prize is awarded every other year “to an individual who has made a significant contribution to advance human freedom.” Friedman specifically cited the man who stood in front of the tank in Tiananmen Square as someone who would qualify for the Prize by striking a blow for liberty. Yon Goicoechea not only stood in front of the tank, he stopped it. Milton Friedman would be proud.

I notice that the Prize has gone each time to someone almost a generation younger than the previous recipient. I’d guess that trend won’t continue, unless President Obama’s daughter convinces him to privatize Social Security.

Imagine a government that works like an iPhone

or like highly polished software. In the latest Econtalk Russ Roberts and Edward Castronova, of Indiana University and author of Exodus to the Virtual World, discuss the implications of virtual worlds. Highly polished government is just one of the topics that two economists find illuminated by the virtual reality massively multiplayer games.

The products we love to use are invariably developed around a tightly controlled core set of features, giving the developers the time necessary to test and polish each feature until it either works really well — or is eliminated. Testing is the only way to reach reliability and customer satisfaction.

Conversely, the customers of government usually are on the receiving end of a 0.1 release. The party in power had an idea, which got codified into law. If we are very lucky, after a generation or two this new law gets “reformed” to fix some of the bugs. Bad law is almost never just killed.

There’s more — such as what we can learn from the games industry about human motivations. Enjoy