Bangladeshi Garment Workers and the Perversion of Ethics

by Mario Rizzo

For the last few days the newspapers have been filled with stories about how western garment manufacturers will now insist on greater safety for the workers who make their clothes in Bangladesh. They will pay for renovations and reconstructions of the physical plants. What is more, the government in Bangladesh will raise the minimum wage and make unionization easier.

So now Pope Francis and the relatively rich in the developed world (many of whom were among the 900,000 names on a petition to improve things that has been circulated) will be pleased and the demands of their social conscience will be satisfied.

F.A. Hayek: His 114th Birthday

by Mario Rizzo

Today is Hayek’s birthday. Much has been and will continue to written about him. When I look around at much of what passes for economics today, especially in the prestige circles, I cringe.  But reading his work always comforts me that something better is possible. And, in fact, there are many economists all over the world who take their inspiration from Hayek and his work. This is their day too!

Hayek, of course, was more than economist. He also had profound things to say about the mind, the rule of law, and ethics. Recently, I saw a stark example of the difference in ethical thinking between Hayek and more conventional moralists. This was in the case of the tragic fire in a Bangladeshi factory making clothes for western companies. The new Pope Francis condemned it as an example of corporations only caring about their bottom-line.

Now there are legitimate issues, from the point of view of the individuals working in this and other such factories. Can they rely on the attestations of a certain degree of safety in their working environment? Before people can voluntary assume the risks associated with certain kinds of work they must have at least a pretty good idea of what those risks are.

And yet there is a more fundamental issue.  Workplace safety is a matter of degrees. It is a working condition that is part of the cost of labor. There is an inevitable tradeoff between wages and level of employment, on the one hand, and workplace safety on the other hand. In rich countries workers can afford to sacrifice something for greater workplace safety. This is all part of increasing wealth.

Now major corporations are re-thinking their use of factory labor in Bangladesh.  They don’t want the images of large numbers of dead ruining their reputations. Ostensibly, they will argue that since they cannot trust Bangladeshi authorities to keep the factories safe they will not deal with them. Voila, the moral stance.

The Euro: a Step Toward the Gold Standard?

by Andreas Hoffmann (University of Leipzig)

In a recent piece Jesus Huerta de Soto (2012) argues that the euro is a proxy for the gold standard. He draws several analogies between the euro and the classical gold standard (1880-1912). Like when “going on gold” European governments gave up monetary sovereignty by introducing the euro. Like the classical gold standard the common currency forces reforms upon countries that are in crisis because governments cannot manipulate the exchange rate and inflate away debt. Therefore, to limit state power and to encourage e.g. labor market reforms he views the euro as second best to the gold standard from a free market perspective. Therefore, we should defend it. He finds that it is a step toward the re-establishment of the classical gold standard.

There has been much criticism of the piece that mainly addresses the inflationary bias of the ECB. I actually agree with much of it. In particular, imperfect currency areas have the potential to restrict monetary nationalism. This can be welcomed just as customs unions that allow for free trade (at least in restricted areas). But I have some trouble with De Soto’s conclusions and the view that adhering to the euro (as did adhering to gold) gives an extra impetus for market reform – in spite of the mentioned e.g. labor market reforms in Spain.

Remembering Armen Alchian

by Jerry O’Driscoll

Earlier this year, we lost one of the greatest economists of this century, UCLAs Armen Alchian, who died at age 98. David Henderson wrote a wonderful appreciation of him for the Wall Street Journal.

Alchian taught at UCLA from the early 1950s until his retirement in the 1990s. Few men have put their stamp on a department as he did. Milton Friedman comes to mind at Chicago. Alchian taught the economic way of thinking, and his approach permeated the course offerings by almost all the other professors. If you took macro from Axel Leijonhufvud, you got a dose of Alchian’s micro. In monetary classes, works like Alchian’s “Why Money” were topics of discussion.  Alchian’s analysis of price searching behavior was background in all the courses.

Liberty Fund published a two-volume collection of his writings. I can obviously touch on only a few issues.

One of Alchian’s greatest contributions was to the theory of market pricing.

Cyprus

By Jerry O’Driscoll

 

Cyprus is the latest country to succumb to the financial rot in the European Union. Once a banking center, its citizens now cannot pay for their own imports. Exporters are demanding cash only for goods sent to Cypriote businesses. Credit has dried up. Businesses are closing because they have no goods to sell.

The economic crises in the various countries have fallen into two types. In the first type, highly indebted governments experienced fiscal crises and could no longer service their debts. Banks had lent to these governments and their condition was impaired by the value of the government bonds falling.  The economies went into recession, which was aggravated by higher taxes and enhanced collection of taxes. Greece is the poster child for a financial and economic crisis begat by a fiscal crisis.

Income Inequality Matters

by Roger Koppl

Income inequality matters. Let me say that again so you know I meant it: Income inequality matters. This statement may be surprising coming from a self-described “Austrian” economist and a “liberal” in the good old-fashioned pro-market sense. It shouldn’t be. It should be one of our issues. The surprise should be that we pro-market types have not spoken up more on this central issue, thereby letting it become associated almost exclusively with more or less “progressive” opinion.

This indifference to income distribution is all the more mysterious because pro-market thinkers generally support a theory of politics that tells us to watch out for ways the state can be used to create unjust privileges for some at the expense of others. We should expect the distribution of income to be skewed toward the politically powerful and away from the poor and politically weak. In a representative democracy “special interests” engage in “rent seeking” to get special favors. Those special favors enrich some at the expense of others. That’s what they are meant to do!

Economics of the Undead

This is a project I’ve been working on, and I hope that some of ThinkMarkets’ readers (and bloggers) will consider contributing.

Call for Abstracts

Economics of the Undead:  Blood, Brains & Benjamins

Glen Whitman & James P. Dow, Editors

The editors seek abstracts for essays exploring the relationship between economics and the undead, especially zombies and vampires.  The chosen essays will appear in a collection to be published by Rowman & Littlefield.

Ideal contributions will use economic reasoning to address issues related to the undead, use the undead as a means of exploring economic thought, or both.  Abstracts and final essays should be written in an accessible and engaging style for a popular audience.  Contributions should also make relevant reference to the undead in pop culture, such as the Twilight saga, Buffy the Vampire Slayer, the novels of Anne Rice, World War Z, the films of George Romero, True Blood, and The Walking Dead.

Possible topics include:  supply and demand in the market for blood; the operation of zombie labor markets; the political economy of responding to undead threats; macroeconomic recovery after a zombie apocalypse; what zombie and vampire behavior tell us about rational-choice modeling; etc.

Submission Guidelines:

1.      Send abstract of paper (100-500 words) in Word or compatible format.

2.      Include resumé/CV for each author.

3.      Submit by email to both glen.whitman@gmail.com and jpdow@verizon.net.

4.      Submission deadline is 7 April 2013.

5.      For accepted abstracts, first drafts of essays will be due 15 July 2013.

Feel free to forward this to anyone with economics training or experience who might be interested in contributing.  Although we are only asking for abstracts at this time, if you have already written an unpublished article that fits the subject matter, you may submit the article in its entirely.

Ignorant Survey from Chicago-Booth?

By Mario Rizzo

The Chicago-Booth IMG Forum asks their favorite economists two questions. Let us examine them.

Question A:

Raising the federal minimum wage to $9 per hour would make it noticeably harder for low-skilled workers to find employment.

Why was the word “noticeably” added to the question rather than some specific quantitative amount?  In other words, the question could have been phrased: “Would it increase unemployment among low-skilled works by approximately 5 percentage points or less?”  I realize that economists would get nervous about mentioning a specific number. But (1) That would reveal the true difficulties in economics of making quantitative predictions and hence tradeoffs; (2) It would take the subjectivity out of the word “noticeable.”  Noticeable for whom, and by what standard?  Noticeable to the public or to the policy maker or to the economist or to the low skilled workers or to union members?

Question B:

The distortionary costs of raising the federal minimum wage to $9 per hour and indexing it to inflation are sufficiently small compared with the benefits to low-skilled workers who can find employment that this would be a desirable policy.

There is a lot here. Let us first separate the raising of the minimum wage to $9.00 per hour from the indexing (one could favor the former but not the latter).

Easy Money, Slow Growth

by Jerry O’Driscoll

In today’s Wall Street Journal, John Taylor explains why the U.S. recovery has been tepid while money growth has been very rapid. The recovery has set records for its weak pace, while money growth has set records for its rapidity. Taylor supplies some of the numbers.

Taylor continues an argument he made at the November 2012 Cato Monetary conference. It is the Fed’s policy that is causing the anemic recovery. To quote, “while borrowers like near zero interest rates, there is little incentive for lenders to extend credit at that rate.” He analogizes the Fed’s fixing interest rates to a policy of price ceilings on housing rents. Lenders supply less credit at the lower interest rates, as landlords supply less housing services under rent controls.

Taylor also notes that the Fed’s policy interferes with the signaling of the price system. It distorts capital allocation. Any decently trained micro economist would understand this. Why cannot the backers of the Fed’s policy?

An Appreciation: James M. Buchanan (1919-2013)

by Shruti Rajagopalan* 

James M Buchanan, who died last week at age 93, was one of the most profound thinkers of our age. Few Indians would be familiar with his academic contributions or even recognize his name. Yet, the insights from his research would strike a chord with every Indian navigating the inefficiencies and excesses of government on a daily basis.

Buchanan, professor emeritus at George Mason University in Fairfax, Virginia, won the Nobel Prize in Economic Sciences in 1986 for his contributions to the economic analysis of political decision-making. By bringing politics back into economics, Buchanan made economics more humane, realistic, interesting, and relevant. He challenged the economics orthodoxy, dared to be different, inspired his students and colleagues, and developed one of the most unique and creative research programs in economics at the Center for the Study of Public Choice at George Mason University.