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 The study, published as a working paper Monday by the National Bureau of Economic Research, has not yet been peer reviewed.

Yeah, I’m not sure it’s literally true that the paper ‘has not yet been peer reviewed.’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 Long-Term Rise in College Tuition: Justifiable or Not?

Our friend Mark Perry possesses a unique talent for producing interesting graphs of economic data. Recently, he produced one regarding the long-term increase in college tuition and fees.

Mark’s point is that tuition has been rising faster than it would have in a purely free market, mostly due to intervention by government in the form of grants and subsidized student loans. Mark implicitly assumes that in the absence of these malefic interventions, we would expect tuition to rise no faster than the overall average level of prices. This assumption, however, is not correct, and contradicts Mark’s own explanation for another compelling graph he produced last fall.

At the time, Mark was asked by the Washington Post to explain why prices of some goods in his graph had fallen while others, including education, had risen dramatically. Here was Mark’s answer, which is essentially correct.

“The ‘miracle of manufacturing’ delivers lower prices all the time, and would explain why those prices [of manufactured goods like TVs] have decreased significantly over time, relative to overall price increases,” he said in an email.

On the flip side, things like education and medical care can’t be produced in a factory, so those pressures do not apply.

That’s right. Because education is not produced in a factory, we would expect the price, even in a free market, to increase faster than the average level of prices. It follows that the CPI does not provide a valid benchmark for evaluating the price of tuition. The sole fact that tuition has increased faster than the CPI price index does not provide sufficient evidence to conclude that tuition has risen too rapidly.

In contrast, prices of manufactured goods tend to fall, or rise less rapidly, over time due to cost savings fostered by improvements in productivity. For instance, before Henry Ford revolutionized the auto industry, a car cost more than a house. By introducing more efficient factory techniques, in just 8 years Ford was able to slash the price of a car by half. Similarly, if car prices during the past 20 years have not increased significantly, as shown in Mark’s graph, the reason is primarily due to increased automation and expanded use of industrial robots.

Because education is not produced in a factory, however, increasing productivity is not so easy. In fact, aside from a few adornments like Power Point slides, a classroom lecture or lesson is essentially produced today the same way it was hundreds of years ago. The primary cost factor driving the price of education is, as it always has been, the salaries and benefits paid to instructors. It follows that the only way to substantially increase productivity is to somehow economize on the use of classroom instructors. Maybe online classes will eventually achieve those economies, but that remains to be seen.

The fact that the prices of labor-intensive services like education or health care can be expected to rise, even in a free market, faster than the average level of prices is known as ‘cost disease,’ and was first explained decades ago by economist William Baumol.

So, can cost disease alone, without considering interventions by government, explain the long-term rise in college tuition?

First of all, Mark’s first graph uses the tuition price that is ‘posted,’ but that’s not the price that students actually pay because they receive substantial discounts euphemistically known as ‘scholarships.’ We therefore need to subtract scholarships to obtain the so-called net price.

In a subsequent tweet, Mark referenced data from the College Board on the net price of tuition, fees, room, and board (TFRB) over the past 20 (not 50) years.

That College Board data, available here, indicates that, adjusting for inflation, TFRB increased from $8,730 in 1996 to $14,210 in 2016. As Mark notes, this implies an increase of 63 percent.  Price indexes, however, tend to overestimate the rate of inflation. In particular, Michael Boskin says that the CPI overestimates inflation by about 0.8 or 0.9 percentage points per year. Shaving 0.8 points off the inflation rate puts 1996 TFRB, in terms of 2016 dollars, at only $7,440, not $8,730. Now the inflation-adjusted increase in TFRB looks even bigger: 91%!

But we have not yet accounted for cost disease, which implies that prices should rise in the long term approximately as fast as labor productivity. From 1996-2016, labor productivity increased about 49 percent. So cost disease alone would have increased TFRB from $7,440 to $11,090. This figure gives the correct benchmark for judging if tuition increased faster than would be expected in a free market. Turns out that it did, because $14,210 is greater than $11,090. As a percentage, however, today’s figure exceeds the benchmark by 28%, or only a little more than one percent per year. This rate of increase is far less dramatic than implied by Mark’s first graph.

Finally, to complete the picture, we would need to account for changes in the quality of higher education. Students today perhaps receive better service than they did in the past. Even if the classroom experience hasn’t improved, casual observation suggests that housing, food, and athletic facilities have improved considerably. The excess price increase of just over one percent per year could possibly reflect these improvements.

In short, the long term increase in tuition is much more nearly justifiable than most everyone believes.

How Much is an Asteroid Worth?

The ever-entertaining New York Post published a piece on the feasibility of mining asteroids.

The global investment bank Goldman Sachs has claimed mining asteroids for precious metals is a “realistic” goal.

It has released a report exploring the possibility of using an “asteroid-grabbing spacecraft” to extract platinum from space rocks.

“While the psychological barrier to mining asteroids is high, the actual financial and technological barriers are far lower,” the report said, according to Business Insider.

“Prospecting probes can likely be built for tens of millions of dollars each and Caltech has suggested an asteroid-grabbing spacecraft could cost $2.6 billion.”

The bank added: “Space mining could be more realistic than perceived.”

It is believed an asteroid the size of a football field could be worth up to $50 billion.

I’m not qualified to comment on the technical and economic specifics of the Goldman-Sachs report, but some of the economic assertions made by the Post are patently absurd.

Earlier this year, NASA said it was planning a mission to an asteroid so valuable it could cause the world’s economy to collapse.

It is called 16 Psyche and is a massive hunk of the precious metals iron and nickel.

The mysterious “metal world” was formed during the turbulent birth of our solar system.

It is valued at $10,000 quadrillion, according to Lindy Elkins-Tanton, the lead scientist on the NASA mission.

Bringing back large quantities of metals could definitely depress prices in metals markets. That would be bad for Earth-based mining industries and other people invested in metals, but these costs would be more than offset by lower costs for industrial users of the metals. Overall, the increased supply of metal would be beneficial to humanity. Economically, ‘plenty’ is better than ‘scarcity.’

Moreover, I can’t think of any valid economic reason why asteroid metal, no matter how plentiful, would “collapse” the “world’s economy.” I notice the article did not quote an actual economist on this assertion. The only way an asteroid crashes the global economy is by literally crashing into it, like a replay of the dinosaur extinction.

Furthermore, the “$10,000 quadrillion” figure cannot literally be true. This number is about 90,000 times as large as the entire world’s GDP.

Best case scenario is that the asteroid enabled humanity to effectively abolish scarcity in metals so that metals literally became as free as the air. How much would this be worth? Global mining revenue equals about $400 billion per year, but this includes coal and many other minerals not present in the 16 Psyche asteroid. Adding in lower-valued uses of metals perhaps brings the value to $600 billion per year. If we discount this figure at a modest 2 percent rate, the perpetuity value comes to $30 trillion, or about one-quarter of world GDP. If so, then the Post’s figure overvalues the asteroid by a factor of 330,000. Close enough, I guess, for clickbait journalism, except that the article quotes a scientist at NASA. Is this what passes for economic analysis at NASA?

Worse than a Crime (Updated)

Perhaps the most viral story online at the moment concerns the passenger violently removed from a United flight just because the airline had overbooked. The story in fact is quite astonishing and brings to mind Boulay de la Meurthe’s famous line: “C’est pire qu’un crime, c’est un faute.” (It’s worse than a crime, it’s a blunder.)

The blunder on the part of United’s management was huge, as United now looks like the nastiest company in the world, and it’s stock price has taken a significant hit.

The airline reportedly offered passengers as much as $800 to voluntarily give up seats on the overbooked flight, but nobody accepted that offer. That’s when United decided to resort to police state tactics. Of course, the thing to do would have been to ratchet up the $800 offer. At some point, passengers would have been willing to accept. As Ted DiBiase, the Million Dollar Man, said, “Every man has his price.” Even if United had to offer $1600 to four passengers, that extra $3200 is a pittance compared to the legal and public relations costs United is now facing.

There are always two ways to get compliance from people. You can offer them value, or you can threaten them with force. The carrot or the stick. The carrot is always preferable, and is in fact the civilized way to proceed. And that, frankly, is the difference between the free market and communism. One relies on voluntarism, the other, force.

For United, this is apparently not the first time they’ve threatened their own customers. Here’s a story about United threatening to slap a guy in handcuffs unless he gave up his first-class seat. That allegedly happened just last week.

Civilized men do not settle disputes with force. United in these cases is guilty of behavior so uncivilized that the company should be shunned by all decent people. If United were forced out of business over this incident, the outcome would be justified.

In the past, I’ve defended corporate executives from criticism that they are overpaid, saying that, if you want top talent, you’ve got to pay. There must be a lot of very highly paid talent at a company as large as United Airlines, yet somehow amidst all that purported business acumen, the company adopted a policy that anyone with common sense would have known to be disastrous.

One final point. I could be wrong, but I can’t imagine an incident like this occurring 30 years ago. At that time, I believe cooler heads would have prevailed. Something bad has happened to our society. Levels of civility and trust have waned. In this case, not just the airline, but also the passenger behaved very poorly. The passenger did not conduct himself with dignity. Everybody on both sides comes off looking very bad.

Update. Turns out that many media reports about this incident were riddled with errors. First, the reason the airline needed the passenger removed was not over booking. Instead, the airline wanted to fly some of its own employees who were running late to staff a flight.

Also, many media outlets claimed that the airline’s actions, while deplorable, were perfectly legal. But the excellent notices that a lawyer posting on Reddit argues persuasively that United’s actions were in fact unlawful. The law states that United cannot give precedence to its own employees over customers with confirmed reserved seats.

[T]he law is unambiguously clear that airlines have to give preference to everyone with reserved confirmed seats when choosing to involuntarily deny boarding. They have to always choose the solution that will affect the least amount of reserved confirmed seats. This rule is straightforward, and United makes very clear in their own contract of carriage that employees of their own or of other carriers may be denied boarding without compensation because they do not have reserved confirmed seats. On its face, it’s clear that what they did was illegal– they gave preference to their employees over people who had reserved confirmed seats, in violation of 14 CFR 250.2a.

The victim is going to get a very nice settlement. And given that United broke the law, I should think a hefty fine from the FAA would be in order, although I’m not holding my breath, since the regulators basically work for the airlines.

Debate: The End of Jobs

Here at Yet, Freedom!, we warned years ago that robots and artificial intelligence pose grave threats to human jobs. Now Alex Tabarrok, our old classmate, and Tyler Cowen, our old professor, have filmed a lively debate on the subject.

Alex says that labor saving technologies in the past did not cause a net reduction of jobs, because they opened opportunities for new areas of employment that did not previously exist.

The jobs of today were unheard of even ten years ago. Think about all of the people writing apps for those smart phones that we have. Those jobs were unheard of before. There will be new jobs in the future that you and I can’t even imagine today.

What Alex says has always been true. For more than 200 years, machinery and automation have generally been beneficial to labor by increasing wages and improving working conditions. Two hundred years ago, about 90 percent of people were farmers; now only 2 percent are. The disappearance of those farming jobs did not leave people with nothing to do, because new jobs were created that people centuries ago could never have imagined.

The problem is that, while Alex’s argument is correct about the past, it’s not necessarily true about the future. For the first time, things are different. Instead of merely replacing manual labor, machines now are threatening even highly intellectual jobs like being a lawyer or an anesthesiologist.

As Tyler points out, labor market data suggest that, this time, things are different. Labor force participation is falling, and wages are stagnant. Alex, however, dismisses this evidence.

Alex and Tyler posted this debate about six months ago, but a new study published just last month supports Tyler’s position. Daron Acemoglu of M.I.T. and Pascual Restrepo of Boston University found, somewhat to their surprise, that industrial robots depress both employment and wages.

The paper is all the more significant because the researchers, whose work is highly regarded in their field, had been more sanguine about the effect of technology on jobs. In a paper last year, they said it was likely that increased automation would create new, better jobs, so employment and wages would eventually return to their previous levels. Just as cranes replaced dockworkers but created related jobs for engineers and financiers, the theory goes, new technology has created new jobs for software developers and data analysts.

But that paper was a conceptual exercise. The new one uses real-world data — and suggests a more pessimistic future. The researchers said they were surprised to see very little employment increase in other occupations to offset the job losses in manufacturing. That increase could still happen, they said, but for now there are large numbers of people out of work, with no clear path forward — especially blue-collar men without college degrees.

The economists looked at the effect of robots on local economies and also more broadly. In an isolated area, each robot per thousand workers decreased employment by 6.2 workers and wages by 0.7 percent. But nationally, the effects were smaller… each robot per thousand workers decreased employment by three workers and wages by 0.25 percent.

So each robot eliminates three jobs. And keep in mind those are net jobs in the overall economy, not just jobs at the plant where the robot is introduced. The net effect on jobs takes into account those new jobs, as Alex points out, made possible by the robots. New jobs are needed to make and service the robots, but moreover, the robots create jobs by decreasing costs. By lowering costs, the robots leave people with more money to spend on other goods, which can expand employment in other industries. But even after accounting for new jobs, Acemoglu and Restrepo still found a net loss of three jobs for each robot.

Alex’s view of the effects of technology is the optimistic one, and I hope he is right. His argument has always been correct in the past. The latest evidence, however, suggests that the past might not serve as a useful guide to the future.

Why Have Road Deaths Increased?

With the exception of one year in the mid-1960s, roadway fatalities per vehicle mile decreased each and every year from the 1920s until 2014. That trend was derailed in 2015 as fatalities increased by 7 percent. Now the results are in for 2016 and deaths increased by another 6 percent over 2015. In two years, therefore, highway fatalities have jumped by 14 percent. In some states, like Alabama, roadway deaths are up by a shocking 25 percent. Again, this recent spike in crash deaths has no precedent in roughly the last 90 years.

The reason for the increase depends on whom you ask. The New York Times, with its typically statist bias, claims that government is not doing enough to enforce safety laws.

Government officials and safety advocates contend, however, that more than anything else, the increase in deaths has been caused by more lenient enforcement of seatbelt, drunken driving and speeding regulations by authorities and a reluctance by lawmakers to pass more restrictive measures.

A patchwork of state laws leaves many areas where drivers can choose not to buckle up, with little likelihood of being stopped. Only 18 states have laws requiring seatbelts for both front and rear occupants and categorize not wearing them as a primary offense — meaning drivers can be pulled over for that alone. In 15 states, failure to wear a seatbelt in front seats is only a secondary offense — drivers cannot be given tickets unless they are pulled over for other violations.

“It’s still the same things that are killing drivers — belts, booze and speed,” Mr. Adkins said.

Well, I really doubt that people have in the last two years just decided to stop wearing their seat belts, but maybe there’s some truth to the ‘booze and speed’ part.

Quoting the insurance industry, a report by the Wall Street Journal (see below) emphasizes an increase in distracted driving due to smart phones. There’s not a lot of hard data, because nobody knows exactly what people do in their cars, but this is what the insurance industry is saying.

Personally, I have noticed while walking the dog around the neighborhood a shocking number of people looking down at their phones while driving. And these are people who are still driving within the subdivision, which means they are still only a block or two from home. People apparently hop into the car and immediately whip out the phone. If they had to make a call or send a text, couldn’t they have done so before leaving? It seems that people just can’t take a break from their phone addiction.

Another possible reason for the two-year increase in fatalities, however, is the drop in the price of gas. As gas prices fall, people drive more, especially young and sketchy drivers, and traffic density increases. Neither the New York Times nor the Wall Street Journal had much to say about gas prices, but this effect needs to be accounted for.

For many months prior to the fall of 2014, the nationwide average gas price had fluctuated around $3.50. Then prices fell rapidly, and have until today fluctuated around about $2.30. That’s a drop of roughly 34 percent. Can this decrease in gas prices alone explain the 14 percent increase in fatalities?

Several years ago, Professor Guangqing Chi used data from Minnesota to estimate the impact of gas prices on the roadway death rate. He calculated that the elasticity of fatalities per vehicle mile with respect to the gas price was equal to -0.22. That means that every one percent drop in gas prices would be expected to increase fatalities per vehicle mile by 0.22 percent.

Multiplying this figure by the 34 percent drop in price yields a predicted increase in the fatality rate of 34(.22) = 7.5 percent. Using data from the Federal Reserve, I find that total vehicle miles in 2016, compared to 2014, were higher by almost exactly 6 percent. We therefore would expect an increase in total fatalities equal to [(1.075)x(1.06)-1]x100% = 14%. But 14 percent is exactly the increase observed. Remarkably, Professor Chi’s estimated elasticity predicts the increase in fatalities correctly to the exact percentage point.

I wish drivers would pay less attention to their phones, but Occam’s Razor suggests that the recent and unprecedented spike in road fatalities is essentially an unfortunate consequence of the significant drop in gas prices.

Reminder: Low Prices are Good

As if to prove that economic fallacies never die, the E-Commerce Times recently published a piece calling for higher prices for TVs. And not just TVs–airplanes and automobiles too.

Yeah, the reason why this idea “sounds anti-consumer” is because it is anti-consumer. Making goods more expensive is not economic progress–just the opposite. Henry Ford revolutionized the auto industry by making cars less expensive, not more. Before Ford, a car cost more than a house. After eight years, Ford had cut the price by half. He did that by increasing productivity.

Artificially protecting jobs in TV manufacturing would have the opposite effect–it would lower productivity. The repetitive job a Chinese TV worker does for $3 an hour is not very productive; nor is the task very appealing to an American worker.

In 45 years under communism in Poland, all industries and jobs were protected, and not one firm went out of business. But productivity stagnated, and by the end of those 45 years, ordinary people had trouble acquiring even basic necessities like soap.

The purpose of economic activity is consumption, not labor. If we reoriented our economy to the goal of raising prices to protect jobs, we would all end up a lot poorer.

Low prices for goods are a blessing, not a curse.

Paying for College with Shares: A Dubious Idea

Sheila Bair is the former head of the FDIC and the current president of Washington College. Writing in the New York Times, she proposes that students be able to pay for college using shares, rather than debt. The idea is that students could essentially sell shares in themselves by promising to pay a specific fraction of their future income. A borrower’s future repayments would therefore depend on future income. With debt, in contrast, future payments are fixed.

Student debt now stands at $1.3 trillion. More than half of student borrowers are unable to repay their loans according to the original terms. In a well-intended but poorly executed effort to make college broadly accessible, the government has lent freely to students, with little attention to whether they can repay those loans. The result is millions of young people with debt they cannot afford. …

Mr. Trump should scrap debt financing of higher education and make the transition to true income share arrangements. Borrowers would fulfill their obligations to taxpayers by paying a fixed percentage of their income over an extended period of years. Think of this change as a shift in the government’s role from creditor to equity investor. When you lend to a business, it is obligated to pay you back with interest, but with a stock investment, your returns derive from the success of the company.

Similarly, with a student loan, there is a fixed obligation to repay the loan amount with interest, but with income share, there is only a contractual obligation for the student to return to taxpayers a certain percentage of his or her future income. Higher earners will pay back more than lower earners (up to a limit), though all will have an affordable payment and all will have protection against life events — a health crisis, caring for an elderly parent — that reduce their income.

Replacing the current, unwieldy programs with a single repayment plan based on income would provide immediate relief for millions of young people while guaranteeing a steady source of revenue to taxpayer coffers, particularly if payments were built into the tax withholding system.

Although Bair does not acknowledge it, this idea of paying for college with equity has been around a long time. The great economist Milton Friedman, for instance, wrote about this idea decades ago. But aside from the lack of originality, there are reasons for doubting the wisdom of Bair’s plan.

Bair depicts her plan as win-win; both students and taxpayers would come out ahead. The education shares, however, that taxpayers would end up purchasing would probably not generally be good investments. That’s because experience suggests that education shares do not meet a market test.

Debt and equity are alternative methods for financing borrowers. The reason why both methods exist is because each can sometimes be the best method, depending on the circumstances. In some cases, debt works better, in others, equity.

The fact is that we now have many decades of experience with borrowing to pay for college and the preferred method has always been debt, not equity. The market has never supported the use of equity in any substantial way. This is probably no accident; the market chooses debt because debt works better.

The reason why debt probably works better for financing higher education has to do with the particular accountability problems associated with the borrower. In some circumstances, the borrower’s accountability problems favor the use of equity. But when the accountability problem involves ‘shirking’–the borrower not working hard or taking chances to make money for his financiers–the efficient method is debt.

The use of equity will implicitly favor ‘shirkers’–people with poor earning prospects, and tend to encourage shirking. For instance, engineering majors earn considerably more than do psychology majors. Under Bair’s plan, the engineers will have to repay a lot more than will the psychology majors. That may seem fair, but the efficient outcome is for the engineers only to pay more to the extent that their education costs more, not because they earn more. Bair’s plan effectively penalizes the productive majors and subsidizes the unproductive ones.

Bair bemoans the fact that debt currently influences her students’ career choices.

As a college president, I frequently hear from students who are anxious about their ability to repay their loans once they graduate. Many let student debt guide their career choices.

Bair’s plan will indeed alter incentives for students. But those incentives will shift in favor of unproductive choices rather than productive ones. Students will have relatively more incentive to choose unproductive majors. They will also have less incentive after graduation to work hard and to take risks.

As is well-known, equity tends to discourage risk taking because much of the upside of the risk accrues to the shareholders, not the borrower. Students financed with equity therefore have less incentive to take a chance by starting their own business. They also have less reason to push themselves to work hard, because they more they earn, the more they have to repay. As some commenters noted, in the extreme case, a graduate could choose to not work at all and end up paying nothing. These are the probable reasons why the market seems to have preferred debt over equity.

Rather than arbitrarily shifting the financing method from debt to equity, the real solution to the high cost of college it to put an end to government subsidies. Getting the government out of financing higher education will lower tuition costs and also free the market to choose whichever financing method, debt or equity, is more efficient.

Thanksgiving Pilgrims Rejected Socialism in favor of Private Enterprise

Here is our annual Thanksgiving day post.

With the Thanksgiving holiday now upon us, millions of children will hear the story of the First Thanksgiving of 1621. The standard story as told in schools and the media depicts the First Thanksgiving as a celebration of the Pilgrims’ successful harvest and cooperation with the Indians. What the schools do not teach, however, is that a fuller account of the Pilgrims’ story reveals a failure of socialism and a triumph of private property and free enterprise.

1024px-Thanksgiving-BrownscombeThe Plymouth Colony started as a type of commune, or socialist community.

The members of the Plymouth colony had arrived in the New World with a plan for collective property ownership. Reflecting the current opinion of the aristocratic class in the 1620s, their charter called for farmland to be worked communally and for the harvests to be shared.

Interestingly, the colonists’ communist ideology was derived not from Karl Marx, who had not yet been born, but from Plato.

The charter of the Plymouth Colony reflected the most up-to-date economic, philosophical and religious thinking of the early 17th century. Plato was in vogue then, and Plato believed in central planning by intellectuals in the context of communal property, centralized state education, state centralized cultural offerings and communal family structure…This collectivist impulse reflected itself in various heretical offshoots of Protestant Christianity with names like The True Levelers, and the Diggers, mass movements of people who believed that property and income distinctions should be eliminated, that the wealthy should have their property expropriated and given to what we now call the 99%.

The experiment in collectivism failed.

What resulted is recorded in the diary of Governor William Bradford, the head of the colony. The colonists collectively cleared and worked land, but they brought forth neither the bountiful harvest they hoped for, nor did it create a spirit of shared and cheerful brotherhood.

The less industrious members of the colony came late to their work in the fields, and were slow and easy in their labors. Knowing that they and their families were to receive an equal share of whatever the group produced, they saw little reason to be more diligent their efforts. The harder working among the colonists became resentful that their efforts would be redistributed to the more malingering members of the colony. Soon they, too, were coming late to work and were less energetic in the fields.

As Governor Bradford explained in his old English (though with the spelling modernized):

“For the young men that were able and fit for labor and service did repine that they should spend their time and strength to work for other men’s wives and children, without recompense. The strong, or men of parts, had no more division of food, clothes, etc. then he that was weak and not able to do a quarter the other could; this was thought injustice. The aged and graver men to be ranked and equalized in labor, and food, clothes, etc. with the meaner and younger sort, thought it some indignant and disrespect unto them. And for men’s wives to be commanded to do service for other men, as dressing their meat, washing their clothes, etc. they deemed it a kind of slavery, neither could man husbands brook it.”

To their credit, the colonists finally realized their error and changed course. In their third year at Plymouth, the colonists re-introduced private property, and allowed families to keep or trade whatever surplus they produced. As a result, conditions for the colonists improved significantly. As Governor Bradford recorded in his diary

By this time harvest was come, and instead of famine, now God gave them plenty, and the face of things was changed, to the rejoicing of the hearts of many, for which they blessed God. And the effect of their planting was well seen, for all had, one way or other, pretty well to bring the year about, and some of the abler sort and more industrious had to spare, and sell to others, so as any general want or famine hath not been amongst them since to this day.

And Governor Bradford seems to have interpreted the experience of the colony as an empirical rejection of Platonic communism.

The experience that was had in this common course [common property] and condition, tried sundry years, and that amongst the Godly and sober men, may well convince of the vanity and conceit of Plato’s and other ancients; — that the taking away of property, and bringing into a common wealth, would make them happy and flourishing; as if they were wiser than God. For this community (so far as it was) was found to breed confusion and discontent, and retard much employment that would have been to their benefit and comfort.

So there you have it; the lesson of the First Thanksgiving is a triumph of freedom arising out of a failed attempt at socialism. The story must be quite damaging to progressivism, because during the Thanksgiving season several years ago, a progressive propaganda sheet known as The New York Times attempted to refute it. The progressive counterargument is based on two main points. First, common property in the Plymouth Colony did not result in famine and the system was not a failure.

The arrangement did not produce famine. If it had, Bradford would not have declared the three days of sport and feasting in 1621 that became known as the first Thanksgiving.

Fair enough, but we also have Bradford’s own testimony, quoted above, that Platonic socialism had proved unworkable. Furthermore, if the socialist system had succeeded as progressives allege, how do they explain why the colonists abandoned it?

Bradford did get rid of the common course — but it was in 1623, after the first Thanksgiving, and not because the system wasn’t working. The Pilgrims just didn’t like it. In the accounts of colonists, Mr. Pickering said, “there was griping and groaning.”

“Bachelors didn’t want to feed the wives of married men, and women don’t want to do the laundry of the bachelors,” he said.

In other words, the system was working except that it was making people miserable, so they got rid of it. That sounds to us like a social system that has failed. And it failed for the very reason we would expect, namely, a Tragedy of the Commons that undermined incentives (“Bachelors didn’t want to feed the wives of married men…”).

Progressives’ second counterargument is that the Plymouth Colony, as a for-profit corporation, cannot fairly be deemed socialist.

Historians say that the settlers in Plymouth, and their supporters in England, did indeed agree to hold their property in common — William Bradford, the governor, referred to it in his writings as the “common course.” But the plan was in the interest of realizing a profit sooner, and was only intended for the short term; historians say the Pilgrims were more like shareholders in an early corporation than subjects of socialism.

“It was directed ultimately to private profit,” said Richard Pickering, a historian of early America…

Well, words have meaning, and a society that replaces private property with collective ownership of the means of production meets the textbook definition of socialism. If that’s not socialism, then the word has no meaning. This remains true even if the colony as a whole sought to make a profit by trading with the rest of the world. The Pilgrims may have been capitalists when it came to exporting furs, but the essential fact is that production for domestic consumption was organized as socialism.

This second argument of the progressives also underscores the weakness of their first argument, that “common course” had not failed. Because we can be sure that if common course had been a ringing success, progressive journalists wouldn’t be working to disassociate it from socialism. They’d be hailing it as a triumph of socialism.

In summary, the story of the First Thanksgiving illuminates two crucial and eternal truths. First, collectivism always fails. Second, progressives, to defend their socialist beliefs, will deploy the most appalling sophistry, specious reasoning, and intellectual dishonesty.

Happy Thanksgiving, everyone!

Obamacare: No Free Lunch

Milton Friedman liked to point out that “there’s no such thing as a free lunch,” which means that government spending must be paid for, and for the government to bestow benefits on one person it must impose costs on somebody else.

The website Vox, a mouthpiece for the establishment, recently succumbed to the free lunch fallacy in its defense of Obamacare. One of the goals of Obamacare was to reduce insurance prices for older people by charging them less than their costs. But if old folks pay less than cost, somebody else must make up the difference by paying more. That somebody else was young, healthy people, who would be forced to pay more than their costs.

Obamacare attempted to effect the transfer of wealth from young to old by imposing a ‘3-to-1 age band,’ which means that insurers can not charge older people any more than 3 times as much as they charge young people. If old people cost insurers 4 or 5 times as much, insurers by law have to keep the ratio down to three by charging old people less than cost and young people more than cost. The young thereby effectively subsidize the old.

Whether or not you approve of this transfer of wealth from young to old, there’s no doubt that it’s the young who get fleeced. Yet Vox’s slippery rhetoric suggests that Obamacare is win-win for both old and young; in other words, a free lunch.

The talking point that individual market premiums have skyrocketed…is only true for young people, with no medical problems, who purchased catastrophic coverage plans that cover less than 60 percent of expenses.

Yes, they pay more today. But they are getting plans that cover more of their costs (at least 60 percent), have an out-of-pocket maximum of $7,500 per year, cover more things, have no lifetime maximum benefits, and offer free preventive care. Older people, because of 3-to-1 age bands (the allowable ratio of premiums paid by the oldest members relative to those paid by the youngest) are often paying less. And providing more affordable coverage to older people who are more likely to need coverage is a good thing.


Sorry, but to switch metaphors, Vox can’t have their cake and eat it too. Young people are not better off with those admittedly “skyrocketing” premiums, and being forced to purchase plans they really don’t want. If people want to pay for insurance plans that “cover more things,” that choice should be theirs and not something the government forces on them. That “free preventive care” that Obamacare offers has very little value to people who are young and healthy.

But the salient point is that Vox cannot tout the benefit of the 3-to-1 age band to older people while at the same time eliding the corresponding cost to younger people. That is just plain intellectually dishonest.

I do, however, have to admire Vox’s chutzpah. They entitled their piece “Republican criticisms of Obamacare are extremely misleading.”