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Don McNeeley on The Minimum Wage, Optimism for Manufacturing

Don is smartest man I know  in the steel industry.  The relative vs absolute cost of the minimum wage. Bullish on manufacturing because of frustrated demand- not because of legislation, but in spite of it.

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Bad Fortune vs Bad Choices

From the Pittsburgh Tribune Review Donald Boudreaux writes Questions for redistribution’s proponents
Excerpts:

• Suppose that Jones chooses a career as a poet. Jones treasures the time he spends walking in the woods and strolling city streets in leisurely reflection; his reflections lead him to write poetry critical of capitalist materialism. Working as a poet, Jones earns $20,000 annually. Smith chooses a career as an emergency-room physician. She works an average of 60 hours weekly and seldom takes a vacation. Her annual salary is $400,000. Is this “distribution” of income unfair? Is Smith responsible for Jones’ relatively low salary? Does Smith owe Jones money? If so, how much? And what is the formula you use to determine Smith’s debt to Jones?

• While Dr. Smith earns more money than does poet Jones, poet Jones earns more leisure than does Dr. Smith. Do you believe leisure has value to those who possess it? If so, are you disturbed by the inequality of leisure that separates leisure-rich Jones from leisure-poor Smith? Do you advocate policies to “redistribute” leisure from Jones to Smith — say, by forcing Jones to wash Smith’s dinner dishes or to chauffeur Smith to and from work? If not, why not?
Read more: http://triblive.com/opinion/donaldboudreaux/5283716-74/jones-smith-income#ixzz2qBeM8gJo
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HKO

The argument for redistribution often assumes that citizens are only objects subject to the whims of capitalism, and not subjects whose own decisions have impacts on their own lives.  It is true that many fall victim to bad fortune and probability, but many are victims of their actions and choices.  Should we distinguish between these two group, and how should we do it?

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Expanding Inequality is the Result of Misguided Fiscal Policy

William Galston writes in The Wall Street Journal, Soaring Profits but Too Few Jobs; (may require paid subscription- which I highly recommend)

Excerpts:

According to a report last week from the Commerce Department, corporate profits after taxes in the fourth quarter of 2013 rose to an annual level of $1.9 trillion—11.1% of GDP, a postwar high. Meanwhile, total compensation—wages and benefits such as health insurance and pensions—fell to their lowest share of GDP in at least 50 years. From December 2007 through the third quarter of 2013, the compensation share of national GDP declined to 61% from 64%. A simple calculation shows that if compensation had remained at the 2007 share, workers would have earned $520 billion more in 2013.

There’s no end in sight. The Wall Street Journal’s Justin Lahart reported recently that analysts expect profits for the S&P 500 to grow by 7.4% in 2014, far faster than nominal GDP. So profits will once again command a larger share of national output. Some of this, he says, reflects short-term factors. Persistently low interest rates have allowed companies to refinance debt, cutting interest costs even as they have increased net debt for 14 consecutive quarters. Moreover, companies have been able to offset gains in gross profits with losses incurred during the recession, reducing their effective tax rates.

Economists don’t agree about why the recovery has been so grindingly slow. Let me offer my own non-economist’s suggestion: However necessary a low-interest-rate regime may have been at the beginning of the recovery, it has moved through a phase of diminishing returns, which have now turned negative.

The current regime has allowed the banking system to recover and spurred gains of 250% in the equities markets from their spring 2009 low. No doubt the “wealth effect” boosted consumption among those fortunate enough to hold substantial amounts of stock. Homeowners who have been able to refinance have benefited as well.

That’s the upside. But the downside has been sizable. Low interest rates have reduced the purchasing power of retirees struggling to supplement fixed incomes with decent returns on low-risk investments. And the low rates have altered business decisions, at least at the margin. Today’s interest-rate regime lowers the cost of capital—and therefore of capital investment relative to labor. To be sure, the substitution of technology for labor is a continuing process. But the pace of that substitution is crucial for the job market, and current policies are having the unintended effect of accelerating it, further retarding job creation.

HKO

The wealthy have options that others do not.  Low interest rates, and lending policies that have favored large publicly held companies over small local companies have helped improve the bottom lines of the larger public companies.  The incredibly high friction costs to hire which includes the ACA but also includes the previous threat of the card check bill and the constant threat to raise taxes on income which is how smaller businesses finance their growth retards hiring.

This administration which demonizes the rich, bemoans growing inequality,  and holds redistribution as a high value has in their stunning ignorance achieved the opposite results they claim to want.

The risk reward for an investor sharply favors buying publicly held equities over investing in a small business.  Hiring suffers from this reality.

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Speeding Up Ignorance

victor-Hanson

Victor Davis Hanson writes Technology and Wisdom in The National Review Online.

Excerpts:

The latest fad of near-insolvent universities is to offer free iPads to students so that they can access information more easily. But what if most undergraduates still have not been taught to read well or think inductively, or to have some notion of history? Speeding up their ignorance is not the same as imparting wisdom. Requiring a freshman Latin course would be a far cheaper and wiser investment in mastering language, composition, and inductive reasoning than handing out free electronics.

The problem is not just that high technology is human-produced, and thus often crashes in the same way that imperfect humans often fail. Sophisticated electronics also often disguise the brutal premodern world with a thin veneer of postmodern egotism.

Just because we post on Facebook, sell stuff on Craigslist, or charge things on a Target card does not ensure that old-fashion Boston Stranglers or contemporary Bernie Madoffs are not lurking in the cyberspace alleyway to harm us. The ancient Greek poet Hesiod reminded us roughly 2,700 years ago that sometimes intellectual or material progress brings with it moral regress.

Billionaire tech wizard Steve Jobs gave away less of his fortune than did Andrew Carnegie. Google offshores its profits with accounting gimmickry that would have made J. P. Morgan proud. The hip Solyndra bunch got government-insider money and concessions of the sort that Mark Hopkins and Collis Huntington garnered to build the transcontinental line. Yet the old robber barons at least used government money to create something; their modern green-techie counterparts squandered it.

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Stimulus and Wealth Creation

There is an important difference between stimulus and wealth creation.  It is like the difference between a sugar buzz and good nutrition.

Stimulus is almost by definition is a short term move- a sugar buzz.

Wealth is created when innovations and risk taking take place and lowers the cost, improves the quality or creates new products and services.  The more that these serve the desires of citizen consumers the greater is the wealth effect.

With some few notable exceptions this almost happens exclusively in the private sector.  We are willing to sacrifice the investment in the private sector for necessary government function such as courts and police and for some entities that serve the wealth creating environment and general welfare- and we understand that these government services that protect property and facilitate commerce are worth the sacrifice.

But we must understand that the cost of government is a sacrifice to private investment- and if that sacrifice gets too large investment will suffer.  It is good when we can shrink the cost of government in the long run even if there is some short term pain- sugar withdrawal.

It is widely debated what the proper size of government is but I would suggest that we have grown it too large and are in no danger of it becoming too small anytime soon.  I would also suggest that transfer payments are a part of that cost.