no third solution

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Category Archives: Economic Fallacies

Are Women Underpaid?

April 23rd, 2007

An article in today’s Detroit Free Press informs us that our bureaucrats in Lansing are proposing four bills for equal pay legislation, that would make it a crime to pay a woman less than a man, provided they’re equally qualified, for the same job. Of course, evaluating talent and qualifications of any prospective employee, regardless of gender, is a very subjective task. The article does not indicate, nor do I imagine the bills stipulate, how such merit is to be objectively quantified.

But this doesn’t really matter. What does matter though, is the very real cost of such legislation, to society in general. Defending lawsuits alleging gender-based pay discrimination would probably be quite expensive. As a result, some women would probably be paid more than they are actual worth, in terms of marginal product. The consequence of this, however, is that the cost of hiring and keeping a woman on payroll would be greatly increased. This is what is “seen,” in the sense that some women will undoubtedly benefit financially from such measures. But what is “unseen,” is that many other women would probably see their opportunities for work diminished, just as minimum wage legislation has disproportionate effects on the elderly, minorities, and unskilled or low-skilled workers.

Do women earn less than men? Sure, most studies tend to verify this adage. But does this matter?

I posted the following comment on the article’s message board:

Because labor is, to some extent, commoditized, we would expect something like the “efficient markets” to come in to play. If women are systematically being underpaid, any sound theory of entrepreneurship suggests that somebody, somewhere, will recognize this, and will make a fortune by head-hunting the allegedly “underpaid” women, by offering a better compensation package than they’re currently earning. The theory of efficient markets does not require that all entrepreneurs recognize an arbitrage opportunity, only that somebody recognize it.

We should expect to see venture capitalists piling money into firms run & operated primarily by women, earning spectacular profits in the process. That we do not, I submit, is strong evidence that such “unfair” gender discrimination does not really exist.

Study Aims to Confirm the Law of Gravity

April 11th, 2007

Well, not quite: Study: Oil, gas price gouging bill would damage economy. So it might as well read: “Study Confirms Laws of Economics.” Consider this an obligatory blog post on price-gouging legislation, there will probably be more, but this one is a little different. There are plenty of arguments against this sort of legislation that I could have raised, or that I have previously raised. I thought it might be nice for a change, to demonstrate the the chosen leaders are in fact idiots, and not qualified to lead or govern.

I will spare you discussion of elasticity, instead, I’ll demonstrate that the bill’s proponents are idiots. Says one of the bill’s sponsors, Rep. Bart Stupak, D-Mich, “There is nothing in the legislation that would restrict the supply of oil to this country. All we’re saying is: Just justify your costs…if you can justify your costs, you have no fear of this legislation.”

Now, the first clause in the quote – that the supply of oil to this country will plug along uninterrupted – is either pure idiocy, or a calculated lie. Of course, from a politician’s paradigm, nothing would restrict the supply of oil to this country. For starters, a politician doesn’t believe that any measure of law is capable of disrupting the market’s interplay of supply and demand. So to postulate that the law cannot do this is idle wind. To a politician, the demand for and the supply of everything is infinitely and perfectly elastic. This is clearly a fantasy world in which they live, and it is a prime reason why all politicians are moral defectives[1] Of course, the law does not create a supply disruption – but even if it did, Stupak wouldn’t believe it, and would make statements to the contrary. The problem is that the supply disruption, the restriction is entirely exogenous – the law does not create a restriction per se, but it is similarly powerless to prevent one.

As for the latter part of Stupak’s statement, what I presume he means, is “Just justify your prices…If you can justify your prices, you have no fear of this legislation.” But there can be no justification for an exogenous sourcing cost – it is justified axiomatically. If it were not justified, it wouldn’t have been incurred. If it is “too high,” the company will lose money selling at a loss. The oil companies have no control over the cost of inputs they buy; they can only decide whether to purchase inputs or abstain from purchasing. Stupak would have them abstain, (but the law does not require this) which translates to domestic shortages. BigOil cannot manipulate the market price of crude. They probably cannot exert appreciable pressure on the market price for ball-bearings. So I’ll conclude that Stupak is a fucking idiot (see also, above), because he doesn’t know the difference between a “cost” and a “price,” and has therefore revealed that he is not even remotely qualified to weigh in on this issue.

The article notes that a similar bill died in the Senate last year. Given that discussion about high gas prices was at a fever pitch last year, and this year seems to be barely a blip on the radar, my hopes are that if it gets that far, it suffers similar fate.

* “Politicians…see the tax code as serving the dual purposes of raising revenues and controlling behavior… They are impervious to both economics and history. This is a major reason why all politicians are, by definition, moral defectives. back to top

White on Krugman on Bartlett

April 9th, 2007

At the NYT, Bruce Bartlett derides the mainstream, Keynesian economics that prevailed in the 1970s – e.g., Paul Samuelson’s most-famous-economics-textbook-ever. Krugman thinks Bartlett is setting up a straw-man with his characterization of the Keynesian school. Lawrence White, at Division of Labor, agrees with Bartlett and offers a rebuttal. White says, in essence: Maybe they were teaching you, MIT übermenschen, a different Keynesian system. But what they were teaching undergraduates is exactly what Bartlett describes:

“Budget deficits stimulate economic growth”: We didn’t hear much about growth, but we were certainly taught that deficits raise the level of income, via the balanced-budget multiplier.

“The means by which the government raises revenue is essentially irrelevant economically”: Well, in the macro half of the course, yes.

“Government spending and tax cuts affect the economy in exactly the same way through their impact on aggregate spending”: Yes.

“Personal savings is bad for economic growth”: Certainly bad for the level of income, due to the paradox of thrift.

“Monetary policy is impotent; and inflation is caused by low unemployment, among other things.” Yep. We were never taught MV=Py.

What’s perhaps more important, is that every single one of Bartlett’s bullet points in the quote above, is exactly what most colleges and universities are still teaching their undergraduates. I was taught – at every level – the very material that Krugman claims wasn’t being taught when he was in school. I had it at community college, at university, and for a few semesters of grad school. In 2005. If the MIT (and presumably, other top-notch schools) staff knew this stuff was wrong three decades ago, how is it still being taught, anywhere?

no third solution

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