Poverty of Ethics without Economics: Bangladesh

by Mario Rizzo

In a world where people’s ethical goals are intrinsic values we could easily argue, as did David Hume, that the values themselves are not subject to scientific analysis.  But, as things turn out, many of what people believe to be intrinsic values, and therefore ultimate goals, are not. They are intermediate ends to which the attainment of some more nearly ultimate goal is imputed. For example, if I believe that my happiness is an intrinsic moral good, and I think that the connection between my happiness and making more money is completely unproblematic, then I may legitimately believe that additional money-making is an ultimate moral goal. (How one intrinsic good should trade off against another is a separate issue.)

Some people think that policies that mandate good wages and safe working conditions are ultimate goals. Or at least they seem to believe that. Much of the discussion about the recent Bangladesh factory fire has this air about it. Much to my disadvantage in polite company, I argued that the advocates of “justice for the poor” were ignoring important factors.

Even if you do believe that better working conditions and higher wages for Bangladeshi garment makers are intrinsic values, what kinds of policies will achieve these values? Does it matter whether the policies will result in some workers improving their wages and working conditions, while other will see a decline in their wages and working conditions?

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.

Malinvestment in Human Capital

by Jerry O’Driscoll

The Weekend Wall Street Journal has a front-page article on labor mismatch: “Help Wanted: In Unexpected Twist, Some Skilled Jobs Go Begging.” It focuses on the problems that the Union Pacific Railroad is experiencing trying to hire skilled workers to keep the trains rolling. These include electricians who work on diesel engines.

It is a widespread problem: the article reports survey results showing that 83 percent of manufacturers reported a moderate or severe shortage of skilled production workers.

Revolution on Wall Street?

by Chidem Kurdas

Protestors have “occupied” a square near Wall Street for weeks. Hundreds of them were arrested, some 700 while blocking the Brooklyn Bridge. The movement may be spreading to other American cities. At least one demonstrator says: “This is a revolution.”

They complain of joblessness and the inequities of global capitalism, though the sources of their distress vary widely, from having to pay back student loans to the depredations of the internal combustion engine. At this point their immediate, tangible adversary appears to be the New York Police Department. It is easy to make fun of disaffected middle-class kids with Apple computers camping out in Downtown Manhattan. They bask in media limelight while taunting working-class cops. Still, we should try to understand the matter.

Euro Benefited Germany More than Others in Zone

by Andreas Hoffmann

The euro benefited Germany more than others in the zone. Germany exported and won, the others had to import German goods and lost  (link). This seems to be a consensus in the world of politics. The second consensus is that a bail-out package for the euro problem children or even euro bonds are necessary to safe this euro. And obviously without this euro, there would be no EU.

The combination of the two arguments is used to convince the German parliament and public of that the bail-out packages are necessary.

Emergency Rooms Just Encourage Drunk Driving

by Roger Koppl

I do not understand why so many pro-market commenters are opposed to extending unemployment relief.  The supposedly killer, knockdown, unanswerable argument is that unemployment relief encourages unemployment.  Hospital emergency rooms encourage drunk driving.   Should we therefore close hospital emergency rooms?  

Friedman on Social Security Reform

by Chidem Kurdas

This may be a good time to revisit Milton Friedman’s proposal for reforming all entitlement programs and social security, in one fell swoop. His idea goes back several decades but is no less powerful in its simplicity. A serious discussion on reform may now start with the Roadmap put forth by Wisconsin Congressman Paul Ryan, the next chairman of the House Budget Committee.  

Heterogeneous Labor

by Jerry O’Driscoll  

In the September 4th issue of the Wall Street Journal, Jon Hilsenrath chronicles the debate over the reasons for persistently high unemployment.  What is being described is the problem of heterogeneous labor.

Labor, like capital goods, is specialized and specific to certain occupations. When those occupations disappear in recession, the next best alternative immediately available locally may pay considerably lower wages. Workers may “know” they have better alternatives, but their knowledge capital has also depreciated with the crisis and downturn. They must search for employment opportunities.

A VERY SIMPLE QUESTION

by Mario Rizzo

Professor and Fed Chairman Ben Bernanke did not predict the financial mess and subsequent “Great Recession” — at all, never mind the extent of each.

So now he is charged with predicting where the economy is going and how to prevent or ameliorate further deterioration of the lackluster “jobless” recovery by the appropriate balanced monetary stimulus.

What? Am I missing something?

So why are business decisionmakers waiting around to see what happens?

Why No Jobs?

by Jerry O’Driscoll  

In today’s (Monday, August 9th) Wall Street Journal, a small business owner provides the calculations on why he is not hiring. He takes his median employee, changes her name, and explains why he must spend $74,000 to provide her with an after-tax salary of $44,000 plus $12,000 in benefits. The risks of higher taxes and mandates are on the upside. And, yes, Obamacare is already adding to his healthcare costs.

Sometimes commonsense economics trumps high theory.  Firms aren’t hiring because it isn’t cost effective.   The owner could hire more people and expand his business, but it isn’t cost effective.

What would you do to alter the calculation in favor of more employment?

The Dismal Jobs Picture

by Jerry O’Driscoll  

Steve Horwitz has stimulated a lively discussion of the slow recovery in jobs at Coordination Problem.  There are two letters in today’s Wall Street Journal addressing the issue.  One letter references an earlier article in the July 10^th Journal. 

The article is titled “Debt, Bank Troubles Leave U.S. Trailing in Job Growth.” It has charts showing how the U.S. is lagging shockingly in the jobs recovery compared to other major economies, and select developing countries (those reporting jobs numbers in a timely fashion). The only problem with the article is that it can’t explain the lag with the factors it adduces. Other countries with banking and debt problems are doing better than the U.S. in the jobs picture.

What Causes Unemployment?

by Jerry O’Driscoll  

Last week, there was a testy exchange between the Editors of the Editorial Page at the Wall Street Journal and the Director of the National Economic Council, Lawrence H. Summers.  On the April 13^th Page, the editors quoted Summers from a 1999 essay on the causes of long-term unemployment.  According to Summers 1999, there are two causes: “welfare payments and unemployment insurance.”  

Summers 2010 has a different view and the Journal printed his letter on April 16^th in which he accuses the editors citing him “out of context.”  The true cause of the current unemployment is deficient aggregate demand.  Extending unemployment insurance bolsters consumer spending, “thereby contributing to employment.”  

The editors countered with an even more lengthy quotation from Summers’ 1999 essay on the microeconomic causes of long-term employment. They observe, correctly in my view, that Summers’ new theory amounts to the proposition that “pay people for not working, and more people will work!”  And they address a central issue occupying us at TM: whether macroeconomic effects outweigh microeconomic incentives.

It is instructive reading.