The Trouble with Stimulus Spending

Tony and I have an op-ed at Real Clear Policy about the economic impact of government spending. Here’s an excerpt.

During the Great Depression, Keynes argued that even digging and refilling holes would be beneficial. Accordingly, the federal government’s Works Progress Administration sometimes employed people in low-value activities such as picking up roadside litter. During the most recent economic crisis, Nobel Laureate Paul Krugman advocated spending by the government for any reason, including even an imaginary one such as a space alien hoax requiring “a massive buildup to counter the space alien threat.”

Our research comes to a different conclusion: Even in a depressed economy, the benefits of fiscal stimulus are not sufficient to justify indiscriminate spending.

Specifically, we account for the fact that government spending requires taxation, which lowers national income by reducing the incentive for people to work. Furthermore, even new jobs for previously unemployed workers require foregoing the value of alternative activities, such as working at home or in the underground economy.

After subtracting these costs, we find that stimulus spending is economically justifiable only if what it produces, such as infrastructure improvements, provides the public with at least 70 cents on the dollar in value. While this result allows for a relatively small amount of waste (no more than 30 cents per dollar, and only in a depressed economy), it clearly rules out make-work schemes such as those described by Keynes and Krugman.

Read the whole thing here.

Our full research paper is available here.

Job Corps: A Nightmare for Students and Taxpayers

Most upper-middle-class Americans living in their bourgeois bubbles have probably never heard of Job Corps, but their tax dollars have been paying for the $2 billion federal program for 50 years now. Job Corps was founded by Sargent Shriver, the brother-in-law of John F. Kennedy and father-in-law of Arnold Schwarzenegger. Job Corps was a key component of President Lyndon Johnson’s Great Society, which was supposed to eradicate poverty and all other social ills by spending federal money. The purpose of Job Corps was to get ‘disadvantaged’ youth into jobs by having them live on a residential campus for about a year where they would be taught job skills. Like every justification for expanding the government, the idea sounds good in theory, but in practice leads to a tragic tale of government failure.

Embedded below is a two-part investigative report by the local Fox station in Dallas. The report, horrifyingly revealing and well worth watching in full, uncovers rampant violence, fraud, and corruption at Job Corps. The program seems to do little or nothing to improve the employment prospects of students, but is effective at creating income and employment for the private contractors and managers who run the centers. The contractors receive about $45,000 in taxpayer money for each student, which is more than most people pay per year to attend a private 4-year college. Job Corps managers can make upwards of $200,000 per year.

Since the students are cash cows, the contractors are loath to discipline or expel unruly students. As a result, the centers devolve into lawless Lord of the Flies environments, riddled with violence and drug use. After watching the Fox reports, I don’t know how any parent could send their son or daughter into the hellish environment of Job Corps.

Job Corps is under the supervision of the U.S. Department of Labor, but the department refused to answer any of the Fox team’s questions. Such is the level of accountability and transparency that U.S. taxpayers receive from their government.

If members of the 88th Congress that created Job Corps in 1964 had access to a crystal ball so they could see what the program would become decades later, they never would have voted for it. But they did, and now we are stuck with it.

The 88th Congress should have known: Government Always Fails.

Investigation: Trouble at the Job Corps

Investigation: Trouble at the Job Corps, part 2

Minimum Wage: The Long Game (Updated)

ECON 101: As the relevant time-horizon increases, so does the elasticity of demand.

Update. Well, as Glenn points out in the comments, we only had to wait a few more days for evidence to emerge against Seattle’s minimum wage.

When Seattle officials voted three years ago to incrementally boost the city’s minimum wage up to $15 an hour, they’d hoped to improve the lives of low-income workers. Yet according to a major new study that could force economists to reassess past research on the issue, the hike has had the opposite effect.

The city is gradually increasing the hourly minimum to $15 over several years. Already, though, some employers have not been able to afford the increased minimums. They’ve cut their payrolls, putting off new hiring, reducing hours or letting their workers go, the study found.

The costs to low-wage workers in Seattle outweighed the benefits by a ratio of three to one, according to the study, conducted by a group of economists at the University of Washington who were commissioned by the city. The study, published as a working paper Monday by the National Bureau of Economic Research, has not yet been peer reviewed.

Yeah, I’m not sure it’s literally true that the paper ‘has not yet been peer reviewed.’ NBER is the most prestigious working paper series in economics, and although I don’t know for sure, I would guess that they do peer review their papers. That at least has been my personal experience with less prestigious working paper series. In any event, NBER does not publish crap, and this study is in fact state of the art.

[W]hile employment overall did not change, that was because employers replaced low-paying jobs with high-paying jobs. The number of workers making over $19 an hour increased abruptly, while the number making less than that amount declined, Vigdor and his colleagues found.

Vigdor said that restaurateurs in Seattle — along with other employers — responded to the minimum wage by hiring more skilled and experienced workers, who might be able to produce more revenue for their firms in the same amount of time.

That hypothesis has worrisome implications for less skilled workers. While there those with more ability might be paid more, junior workers might be losing an opportunity to work their way up. “Basically, what we’re doing is we’re removing the bottom rung of the ladder,” Vigdor said.

This result explains the seeming paradox of why Big Labor devotes enormous resources to lobbying in favor of increasing the minimum wage when unionized workers already earn far more than the minimum. Since wages of union members are not directly constrained by the legal minimum, why should Big Labor be so concerned with raising the wages of others? The answer is that, in accordance with the results of the aforementioned study, a higher minimum wage gives employers the incentive to replace a number of unskilled workers with a smaller number of skilled workers. This increases the demand for skilled workers, increasing their wages and job security, at the expense of unskilled workers.

The minimum wage hurts precisely those people it is supposedly intended to help. That’s because helping the poor is never the real motivation for imposing a minimum wage. That’s just the excuse used to obscure the real–and far less noble–motive.

The Coming Breakup of the United States

Americans right now are more sharply divided politically than at any time since the Civil War. Things have gotten so bad that we now have, perhaps for the first time since the antibellum era, different states openly feuding with each other on ideological grounds. Last year, for instance, Tennessee enacted a religious liberty law that allows mental health therapists to refuse gay clients. In response, California banned state employees from using public funds to travel to Tennessee. For similar reasons, California maintains equivalent travel bans against seven other states: Kansas, Mississippi, North Carolina, Alabama, Kentucky, South Dakota, and Texas. The latter four states were added to the list just last week.

In response, Tennessee adopted a resolution basically telling California to mind its own goddam business. The resolution even featured some pretty good trolling.

WHEREAS, California’s attempt to influence public policy in our state is akin to Tennessee expressing its disapproval of California’s exorbitant taxes, spiraling budget deficits, runaway social welfare programs, and rampant illegal immigration; and
WHEREAS, Tennessee is pleasantly surprised that California will not be sending its economic development teams to Tennessee to recruit our businesses, but we can still send our teams to recruit their businesses; and
WHEREAS, Tennessee is puzzled why California thinks it is a good idea to prohibit its state colleges and universities from participating in athletic competition in Tennessee (March Madness comes to Memphis this year via the South Regional)…

That’s just fairly harmless trash talk, but the Tennessee resolution also includes threats to impose economic sanctions of its own. It also says the following.

[W]e urge the other forty-eight states to refrain from imposing their unfounded moral judgment on their sister states as California has done in order to prevent escalating foolishness.

I really don’t recall any precedent for states openly calling each other out like this since the Civil War. Marc Thiessen, a former speechwriter for George W. Bush, says that America seems to be “on its way to divorce court” and offers a plaintive cry for unity.

This is not to suggest that there is no role for righteous anger in political discourse. Conservatives felt anger about many of Obama’s policies, and liberals have every right to be angry about Trump’s policies they find objectionable. And they have every right to fight like hell to stop them.

But it wasn’t so long ago that, despite bitter differences over policies, Republicans and Democrats still found ways to work together. President Bill Clinton and Republicans in Congress worked together to pass NAFTA and welfare reform. George W. Bush and congressional Democrats cooperated to pass tax cuts and education reform. Today, that kind of cooperation is unimaginable.

And the reason is simple: When anger transforms into contempt, permanent damage takes place. As American Enterprise Institute President Arthur C. Brooks points out, a marriage can recover from anger. But when couples become contemptuous of each other, they will almost certainly end up in divorce court. That is where our country is headed today.

Liberals need to understand: When they show contempt for Trump, they are expressing contempt for the millions of Americans who voted for him – including millions who twice voted for Obama. These Americans felt that the establishments of both parties were ignoring them and wanted to send Washington a message. The response they are receiving could not be clearer: We have contempt for the man you elected, and we have contempt for all of you who put him into office. They will never forget it.

We need to pull back from this spiral of contempt before it is too late. North Korea is our enemy. Our fellow Americans who disagree with us are not. It’s time we learn the difference – before someone gets killed.

The plea for civility and cooperation is noble and high-minded, but does nothing to address the very real differences dividing Americans. And those sources of division are not going away. Rather, the divisions will continue to widen to the point where a serious movement for secession might emerge.

Already in reaction to the last election, leftists in California tried to organize a ‘Calexit’ movement for independence. That’s another indication of how deep the differences now run. But when the time for the breakup finally arrives, I predict it will be the right filing for divorce from the left. One reason is that, in the ongoing culture war, it is the left that is the bully and the aggressor, and only a masochist submits indefinitely to bullying.

But more importantly, the demographic trends in America are working in favor of the political left and against the right. Once the right realizes that they can never win national elections anymore, they’ll see no point to continued participation. In 1860 the South essentially took the decision to secede because they similarly perceived national politics to be trending against their side.

I don’t know exactly how things will play out. As Mark Twain said, prediction is hard, especially about the future. But I wouldn’t be shocked if 20 years from now the United States as presently constituted no longer exists.

Education Policy: Can America Learn from Germany?

At Power Line, Steve Hayward quotes from a Wall Street Journal report about how college does not improve the typical student’s skills at critical thinking.

Freshmen and seniors at about 200 colleges across the U.S. take a little-known test every year to measure how much better they get at learning to think. The results are discouraging.

At more than half of schools, at least a third of seniors were unable to make a cohesive argument, assess the quality of evidence in a document or interpret data in a table, The Wall Street Journal found after reviewing the latest results from dozens of public colleges and universities that gave the exam between 2013 and 2016.

At some of the most prestigious flagship universities, test results indicate the average graduate shows little or no improvement in critical thinking over four years. . .

For prospective students and their parents looking to pick a college, it is almost impossible to figure out which schools help students learn critical thinking, because full results of the standardized test, called the College Learning Assessment Plus, or CLA+, are seldom disclosed to the public. This is true, too, of similar tests.

Then Hayward makes a very good point. This level of failure and deception in other industries might easily be deemed unlawful and a form of consumer fraud.

[T]his deliberate opacity and failure to deliver the promised service would attract the attention of the Federal Trade Commission and other government “consumer protection” agencies. But the higher education cartel is too well wired politically for this to happen.

A big part of the problem here is the American notion that everyone has a ‘right’ to go to college, even though it’s an evident fact of life that most people have neither the need nor the aptitude to pursue higher academic study. A more practical system is that of Germany, where students at an early stage are placed on one of three tracks that can loosely be described as academic, technical, and trade.

Some people think the US might be able to learn something from the German system. Eric A. Hanushek, an economist at the Hoover Institution, pours cold water on that idea, but I don’t find his arguments very convincing.

Over half of young Germans enter apprenticeships, which can lead to certification in more than 300 different careers. Many are blue-collar jobs ranging from construction to baking, but apprenticeships also cover white-collar fields like information technology and engineering.

An apprenticeship generally involves two to three years of work and study after secondary school. In Germany’s “dual system,” apprentices work on the job for three or four days a week and spend the rest of the time in academic instruction paid for by the government. This setup has been shown to ease a student’s transition into work. Openings in apprenticeships are based on employers’ demands for workers, youths who’ve earned a vocational certificate are readily hirable.

Sounds good. So what’s the problem?

Workers enter the job market with skills that often become obsolete as industries change. The early-career advantage is offset by disadvantages later in life. Research shows that after age 50 German workers with general education do better than vocationally trained ones, many of whom leave the workforce.

But in Germany the people with ‘general education’ are generally those with jobs requiring cognitive ability. We would naturally expect them to do better after age 50 than those who rely on more physically demanding types of work.

Furthermore, an ‘early-career advantage’ that doesn’t go away until age 50 sounds pretty good, and a lot better than nothing. If a worker graduates from an apprenticeship at age 21 or 22 and keeps his job until age 50, that’s a good 28 or 29 year career. Many of America’s unemployed and unemployable youth can only dream of having a good job for 28 years.

Germany and the European Union recognize the need to retrain people whose earlier skills become obsolete. There are continuous calls for “lifelong learning.” Unfortunately, governments have not figured out effective ways to retrain older workers, and companies often don’t see the advantage of doing so.

Even if the U.S. succeeded in expanding apprenticeships, the problem of skill obsolescence remains. The American model of providing vocational training to those who do not like or do not do well in the general curriculum does not augur well for adaptation when new skills are required.

It sounds like Hanushek is arguing that no training at all is better than having to someday be retrained, which is absurd. I’m sure Germany does have a problem in retraining their certified workers when their skills become obsolete. In America, in contrast, nobody talks of having to ‘retrain’ our college-graduate Starbucks baristas because they were never trained for anything in the first place. The girl who cleans the toilets at my gym is a college graduate (art) as was the guy who delivered my bedroom furniture (business).

[In Germany,] [t]raining over the course of a career is significantly more prevalent among workers with a general education.

Again, in Germany these are the people with generally more academic and cognitive ability. So not surprisingly, these people are more adaptable and easier to retrain.

The largest problem of skills in the U.S. today isn’t a shortage of young workers with specific competencies. Instead it is a need for more general cognitive skills that give workers the ability to adapt to new circumstances and new jobs.

But American 4-year colleges are neither teaching ‘specific competencies’ nor improving ‘cognitive skills,’ at least for a large proportion of students. For many of these students, learning some kind of competency would offer a dramatic improvement over the current system, which does nothing except burden students with enormous student-loan payments.

Is Veganism the New Morality?

People are inherently competitive and status conscious, and one of the traditional ways many people competed was in religious devotion. Being overtly religiously devout allowed one to at least pretend to occupy a relatively high moral plane. That’s one way to maintain a good public image, and to make one feel good about oneself. But in the post-Christian West, people need to find other ways to strike a pose of moral superiority. One option, apparently, is veganism.

Writing in The Guardian, Saskia Sarginson relates that her adult children, who by the way live at home, are tormenting her with their veganism. (Hat tip: Justin D.)

[A]s a goodwill gesture, I have switched from cow’s to goat’s butter, although I am probably kidding myself that goat’s butter is acquired in a kinder manner.

My offspring cannot forgive this weakness. Particularly the butter. When they berate me for eating it, I am in turns angry, defiant and depressed. I feel hounded in my own home, and when I’m cornered, I resort to lashing out. After one particularly heated argument, Ed and I escape to the pub to recover. Ed orders scampi fries. I eat one and feel like a rebellious teenager. I know my feelings do not make sense.

“Where did I go wrong?” I wonder bitterly. “Why do they think they can bully me? They ate meat all their lives until about five minutes ago, and now I’m not allowed a tiny bit of butter.”

I’m aware that I sound like a petulant child. But it feels good to moan. Ed nods. “We pay the food bills, we enable them to be vegan, and yet we end up looking like the bad guys.”

“Exactly. It’s easy for them to be perfect,” I say. “They don’t have to worry about council tax and mending the washing machine. They’re still protected in their bubble at home.”

“Yes,” says Ed sadly. “But they do have the moral high ground. I think that’s what’s so difficult to accept.”

This is the adult children’s way of assuaging their egos. They’re losers sponging off their parents, but at least they’ve attained that vegan moral high ground. “Mom may pay the bills, but unlike us she can’t will herself to go full vegan. Ha!”
It’s the ego protecting itself.

But in any event, is veganism really the moral high ground? Where does that come from? Even Sikhs are not vegan, just vegetarian. Did I miss the part in the Nicomachean Ethics where Aristotle endorsed veganism? And can veganism still define the moral high ground even when it’s associated with a strip joint?

That headline is from Portland, Oregon. Pretty much had to be either Portland or San Francisco.

Which reminds me of a joke.

An atheist, a crossfitter, and a vegan walk into a bar…
I only know because they told everybody within two minutes.

But seriously, have these oh-so-moral vegans fully considered the possible consequences of their actions?

The Arrogance of Campus Crybullies: Evergreen Edition

In a post below about George Bridges, the feckless president of Evergreen State College, I embedded a video report by Michael Moynihan of VICE News. The report has been getting a lot of attention, and for good reason–it offers a revealing look at the student protestors creating havoc on campus. The image put forward by the protestors is not a pretty one. They come across as intolerant, unreasoning, arrogant, and entitled to a degree that almost defies credulity. It really has to be seen to be believed, and is worth examining in some detail. Washington State taxpayers in particular should look closely at the chaos depicted in the video and ask themselves if their tax dollars are being well spent at Evergreen.

Evergreen State College Controversy (HBO)

The object of the protestors’ ire is Professor Bret Weinstein, a liberal, who quite reasonably objected to their attempt to ban people from campus, at least for a day, on the basis of race. Student protestors accosted him and disrupted his class. When Professor Weinstein tried calmly to reason with students and to engage them in debate, they responded only with insults and vulgarity.

The students have every right to disagree with Weinstein and to challenge his views. But Weinstein doesn’t deserve this sort of abuse. Frankly, he deserves an apology from everyone involved; the students, and the administrators who allowed this to happen. Some people are wondering if Evergreen will fire Weinstein. I’m wondering when he gets his apology.

The first protestor the video identifies by name (2:22) is “Hadley” a tatted girl I prefer to call Mademoiselle Defarge. She thinks that Weinstein should be fired for disagreeing with her.

The only evidence of uncivil and unprofessional behavior, however, has not come from Weinstein but from the students. Weinstein should go on offense and demand that the disruptive students be suspended or expelled.

Why bring up the professors sex, race, and sexuality? How is any of that relevant to the argument? Who would believe so, other than some kind of bigot?

Weinstein, who I believe is Jewish, has ‘validated Nazis’?

Huddled in their lair, the crybullies then argue that free speech should not protect death threats.

But this is a straw man, because nobody is arguing that death threats are free speech. In fact, anybody who knows anything about the relevant case law knows that the First Amendment does not protect threats of violence. So thanks for that profound insight, snowflakes.

Who appointed Mademoiselle Defarge Grande Inquisidora with the power to ‘weed people out’? The fact is that the college has a great many stakeholders–taxpayers, alumni, donors, faculty, staff–many of whom have been affiliated with the college a lot longer, and have contributed a lot more, than has Mlle. Defarge. Yet she acts like she owns the place. The arrogance is breathtaking.

The crybullies pose as victims, but they’re actually the victimizers. The real victim is Bret Weinstein, along with the serious students on campus who had their education interrupted when the crybullies shut down the campus.

If the crybullies succeed in getting Bret Weinstein fired, he should hire a junkyard dog lawyer and sue the college for wrongful termination and sue the crybullies for defamation.

Why Does the New York Times Hate America?

Bertolt Brecht famously and facetiously asked if it wouldn’t be simpler for the government to dissolve the people and elect another. Writing in the New York Times, Brett Stephens makes essentially the same proposal, only he doesn’t seem entirely facetious.

I speak of Americans whose families have been in this country for a few generations. Complacent, entitled and often shockingly ignorant on basic points of American law and history, they are the stagnant pool in which our national prospects risk drowning…

Bottom line: So-called real Americans are screwing up America. Maybe they should leave, so that we can replace them with new and better ones: newcomers who are more appreciative of what the United States has to offer, more ambitious for themselves and their children, and more willing to sacrifice for the future. In other words, just the kind of people we used to be — when “we” had just come off the boat…

That used to be a cliché, but in the Age of [President Donald] Trump it needs to be explained all over again. We’re a country of immigrants — by and for them, too. Americans who don’t get it should get out.

Sorry to hear that native born Americans are not living up to the standards set for them by Brett Stephens and the New York Times. Allow me to offer, however, a modest proposal. Instead of having all those Americans leave the country, wouldn’t it be a lot easier for the comparatively much smaller number of liberal cosmopolitans like Brett Stephens to leave? Maybe they can find some other country where the people are not so, shall we say, deplorable. Stephens grew up in Mexico and lived in Israel, so there’s two possibilities right there. Hasta la vista, Brett.

I have always thought of the United States as a country that belongs first to its newcomers…

Well, a great many counterarguments can be made. Here, for a start, are approximately 400,000.

University Presidents, Then and Now

1968: Far-left goons threaten to shut down San Francisco State, and President S. I. Hayakawa springs into action to stop them so that the majority of students can continue their education uninterrupted.

[Hayakawa] drew nationwide publicity when he climbed onto a sound truck from which protestors were shouting obscenities through a microphone, knocked a protestor to the ground who stood in his way (Hayakawa weighed only 145 pounds), and ripped out the wiring of the sound equipment, which the protestors were unable to repair. On another occasion Hayakawa brought a bullhorn to the protest, and shouted back at demonstrators. He also did not hesitate to call in police in large numbers to arrest protestors who disrupted classes. “In a democratic society,” Hayakawa said in justifying his recourse to the police, “the police are there for the protection of our liberties. It is in a totalitarian society that police take away our liberties.” He took activists at their word that their demands were “non-negotiable,” and refused to negotiate…. “We have a standing obligation to the 17,500 or more students—white, black, yellow, red and brown—who are not on strike and have every right to expect continuation of their education.”

2017: George Bridges, president of Evergreen State College, tries to appease a mob of far-left students, making concessions and ordering campus police to stand down. The resulting chaos shuts down the whole campus, interrupting the education of the 95% of students who are not protesting.

The funniest—and also the saddest—of the videos might be called the Homework Video, or perhaps the Gumbo Video. Viewed more than 86,000 times on YouTube, it recorded the events of a May 24 meeting with Bridges in his office, which the protesters had invaded and taken over, blocking the exits while some of them checked their phones and helped themselves to what appeared to be university-supplied pizza as they sat at the college president’s conference table. The 66-year-old Bridges, balding, pudgy, bespectacled, and given to sporting bow ties on dressy occasions, had the misfortune of visually calling to mind Bobby Trippe, the adipose city slicker raped by hillbillies in John Boorman’s 1972 backwoods horror flick Deliverance. Subconsciously—or perhaps archetypally, since none was alive when Deliverance was ringing up the cash registers during the early 1970s—the Evergreen protesters similarly seemed to smell blood with the eager-to-please and ultimately hapless Bridges. He had already had an encounter with them the day before, when they stormed his office at 4:30 in the afternoon not long after their successful disruption of Weinstein’s biology class. Their greeting, also captured in a video, had been: “F— you, George, we don’t want to hear a God-damned thing you have to say.” One protester had demanded that Bridges “disavow white supremacy.” Bridges had meekly agreed: “I will disavow white supremacy.”

The Evergreen State protesters at the May 24 meeting, munching their pizza slices while a jacketless, white-shirted Bridges stood abjectly before them holding a multipage list of their written demands, clearly regarded such solicitude for their sensibilities as so much contemptible weakness. The meeting opened with this exchange between a female protester and Bridges:

“All of us are students and have homework and projects and things due. Have you sent an email out to your faculty letting them know? What’s been done about that?”

“It’s the first thing I’ll do. I have not done it yet, I will do it right now.”

“So they need to be told that these assignments won’t be done on time, and we don’t need to be penalized for that.”

Jeers and general derision followed, as Bridges tried to shush them with his free hand and make himself heard.

“Y’all can’t keep doing these pointing fingers,” a female student reprimanded him, after he had apologized and meekly placed the offending hand in his pants pocket.

A few minutes later Bridges pleaded over the din to let him please adjourn the meeting so he could read the list of demands: “You have to give me some privacy, folks. . . . I have claustrophobia.”

The meeting ended with the Gumbo Potluck Demand. A male student standing behind Bridges informed him that if he didn’t respond to the occupying students’ list by 5 p.m. that Friday, May 26, “you need to pay for a potluck.”

Bridges was amenable to that order, too: “We’ll be paying for a potluck anyway,” he replied.

“We want gumbo!” another student shouted.

A knot of students on the other side of the table turned that into a chant: “We want gumbo!”

The opening sentence of Bridges’s statement in response to the students’ demands set the tone and the tenor for everything that followed:

“I’m George Bridges, I use he/him pronouns.”

What followed was Evergreen-predictable. Apologies to the Native Americans whose “land was stolen and on which the college stands”? Check. That “mandatory sensitivity and cultural competency training” for faculty? Check and check. “We commit to annual mandatory training for all faculty beginning in fall 2017,” Bridges said. And there was more: the creation of an “equity center.” A “Trans & Queer Center coordinator.” A “position that will support undocumented students.” And more free food, after the meeting adjourned at 6 p.m.