/* trackback code -- i added this */

Wednesday, January 31, 2007

Amen

A State of the Union response delivered by a four-year-old.
Let's make her the Decider.

Tuesday, January 23, 2007

We're Running!

With the spate of announcements over the last week, the news is full of stories about the fundraising primary and how fierce the competition has gotten.

So, after weekend consultations with our key adviser, the politically prominent Margo Charley Shaw, spacegirl and I have decided to declare our candidacy. That's right:

We're Running for co-President!

Details of our platform will follow....

Wednesday, January 17, 2007

Frontiers of Self-Parody

Misimpressions and Questions of Integrity

They really should fire the guy. But, you know, they're the Bush Administration.

For further edification, read this post over at Balkin, especially starting with the 6th paragraph.

Double-Talk Express: A Video Montage

Those of you who still think John McCain will be a formidable candidate for President in 2008 might take a look at this....

Five Minutes to Midnight

In case you thought only you and a bunch of other damn dirty hippies believe the world is going to Hell in a Humvee, take comfort in the company of scientists.

Nuclear war has never been closer. On the plus side, um, the jury is evidently still out on "science."

Thursday, January 11, 2007

Minimum Wages and Small-Business Tax Breaks

Lots of talk in the news about the min wage after yesterday's big margin in the House to increase it. By all accounts, the Senate will be a tougher sell given the greater powers of the minority there.
News reports suggest that the price of passing the bill in the Senate will be adding tax breaks for small businesses.

I don't know the details of these tax breaks, so I don't have an opinion about whether they're a good idea.

But one very interesting economic point seems not to have been discussed. The usual rationale among opponents* of minimum wage increases is that they will cause disemployment. Binding price floors do indeed cause surpluses this in competitive markets, and the model these opponents have in mind for the labor market is the competitive model. Thus disemployment is the same as a surplus of available labor at the binding minimum wage. Now, there is considerable evidence that any disemployment effects are small. (In fact, some empirical work suggests zero or even positive employment effects, which could happen when the labor market is not competitive, with employers having some market power---my understanding is that the jury on this question is still out.)

But suppose we thought that disemployment effects were substantial. Then the argument for the minimum wage is that one values the gains to the winners---via higher wages---more than the losses to the (job) losers.

What do small business tax breaks do to ameliorate such disemployment? Well, that will depends on whether those tax breaks tend to increase the value of the marginal revenue (VMR) produced by the firms' workers. This is true because in a competitive labor market, a firm's labor demand curve is the same as its VMR curve. At one extreme, a reduction in the tax rate on firms' profits would, indeed, shift the VMR curve up, since it would increase the after-tax value of a sale at a given pre-tax price. At the other extreme, just dumping money on these firms (economists use the term "helicopter drop") would basically do nothing to employment levels---yes, it would increase the value of the firm, but it wouldn't affect optimal employment levels.

Thus it seems possible that there are two different questions here. One is, what are these tax breaks really about--minimizing disemployment effects that worry minimum wage opponents, or simply transferring wealth to firm owners?

Second, is there any reason to transfer wealth to firm owners? If the low-wage labor market is indeed competitive (so that there are disemployment effects), then firms make zero economic profits in equilibrium. Thus the only reason for low-wage employers to care about the minimum wage would be that it reduces the value of their sunk capital. Giving helicopter-droppish tax breaks to offset such a reduction might seem fair--why should small businesses handle the redistributive burden of the minimum wage--but doing so ultimately involves transferring dollars from taxpayers as a whole to these specific ones. Depending on what the set of affected small business owners look like in wealth terms, this policy could be either desirable or undesirable on equity grounds.

I don't know this literature well, but it would be interesting to know if anyone has looked at
this second question.

David and George in Wonderland

Today is one of those days when you read the first sentence of David Brooks's column---
If the Democrats don’t like the U.S. policy on Iraq over the next six months, they have themselves partly to blame.
---and realize that yes, there is at least one other person as delusional as the president when it comes to Iraq policy.

Brooks goes on to explain his rationale:
There were millions of disaffected Republicans and independents ready to coalesce around some alternative way forward, but the Democrats never came up with anything remotely serious.
Consider the underlying logic of this position. At base it's very simple: if the Democrats had come up with a "remotely serious" alternative to the President's plan to stay-the-course, send-more-troops to Iraq (never mind the commanders on the ground after all!) or however you want to describe it, then somehow--somehow--George W. Bush magically would have seen the light, been convinced by Democratic seriousness, and adopted their plan.

Yeah, right.

Just consider this excerpt from the NYT's front page article on Bush's speech last night:
[The president] put it far more bluntly when leaders of Congress visited the White House earlier on Wednesday. “I said to Maliki this has to work or you’re out,” the president told the Congressional leaders, according to two officials who were in the room. Pressed on why he thought this strategy would succeed where previous efforts had failed, Mr. Bush shot back: “Because it has to.”
There you go. We're pursuing a policy. Why will it work? Because it has to.

Once again: We are pursuing because it has to work.

The Democrats have done lots wrong on Iraq and plenty of other things. But come on. This is---even partly---the Democrats' fault?