Take a Walk on the Hedonic Treadmill

Here's what happens when you raise the minimum wage to $15 an hour, according to scientists: Nothing.

Well, not nothing. All kinds of bad things happen to the economy. But nothing happens for two groups of people central to the whole debate: workers who get a bump to $15 and employers who have to bump to $15 an hour.

Most cities and states that have raised their minimum wage laws to $15 will phase in the increase over five years. That pretty much means the market will have adjusted to the change long before it becomes effective. But that's a terrible scenario to test my theory, based on research by Harvard psychologist Dan Gilbert.

Let's do this instead: let's raise the minimum wage to $15 in 30 days.

But first, let's give a standard happiness survey to a thousand minimum-wage earners before we announce the increase. And let's give the same test to wager payers.

Then, let's give re-administer the test to both groups 30 days after the minimum wage hike goes into effect. And let's test them all again one year later.

To keep the experiment clean, the final analysis will include only those who a) kept their minimum wage job for the whole year, or b) kept their minimum-wage paying business open the whole year.

I can tell you the results. One year after the minimum wage goes to $15 an hour, workers making minimum wage will be just about as happy as they were before they learned the minimum wage was going up. Same for the businesspeople who pay them.

In between, just after the wage jumps to $15, worker will be euphoric and owners will be miserable.

minimum-wage-happiness

It's called the hedonic treadmill. Even if we ignore the economic effect of a big jump in minimum wage (like business failures and higher unemployment for those who most need entry-level jobs), we know from science that people adjust quickly to changes in their circumstances.

When you get a new car, it's awesome, but a year later, it's nothing special.

When you buy a new pair of shoes, you love them. And even if they're still in great shape a year later, they're just a pair of shoes.

Dan Gilbert found that one year after winning the lottery and one year after becoming paralyzed, both groups of people were just about as happy as they were immediately before those life-changing events.

Dan Gilbert, (1) a Harvard psychologist has researched lottery winners and found that ‘the happiness effect’ starts to decline after just a few months. Once the initial elation of getting the big cheque has worn off , people seemed to return to their previous level of happiness or unhappiness.

Raising the minimum wage to $15 is a political ploy with economic downsides and no long-term benefit for the people who get the minimum wage.

On the other hand, helping a $7.25 an hour worker earn a 100 percent raise does wonders for that person's life, outlook, and self-esteem while providing economic benefits to his employer, his family, and his community.

So go ahead and double the minimum wage, Francis. It will do nothing but accelerate St. Louis's slide toward irrelevancy.

3 Points on the Pope's Economics **Update**

Last week, Pope Francis all but denounced free market capitalism as a sin. Luckily, he wasn't speaking from the Seat of Peter, but from his own misguided view of the world. Much of Francis's statement gives important and honest direction to a world consumed with fame and money. The Pope is right in decrying systems in which money is the ruler instead of a means to an end. And he's right in describing the inhumanity of a system that protects the wealthy against loss.

Human beings are themselves considered consumer goods to be used and then discarded. We have created a “throw away” culture which is now spreading.

I joined the Conscious Capitalism movement precisely to fight against the evil of crony capitalism. Crony capitalism--which was called "fascism" in the last century--dehumanizes, exploits, and extracts the life of individuals for some common "good" defined and defended by the elite. The Conscious Capitalism Credo says:

We believe that business is good because it creates value, it is ethical because it is based on voluntary exchange, it is noble because it can elevate our existence and it is heroic because it lifts people out of poverty and creates prosperity. Free enterprise capitalism is the most powerful system for social cooperation and human progress ever conceived. It is one of the most compelling ideas we humans have ever had. But we can aspire to even more.

I believe that credo. Every word of it. Apparently, the Pope believes something else.

His targeted assault on the world's only means of producing wealth goes too far and too wrong.

Not that free markets don't have their problems. The naked pursuit of profits is killing liberty and feeding the beast of government. But Pope Francis doesn't look at pictures that large, apparently. He looks at results and assumes causes.

Here are three specific errors in Pope Francis's attack on capitalism.

1. Francis Errs in Understanding Free Markets 

Francis assumes that "trickle down" economics and free market capitalism are the same thing. They're not. The divergence in wealth between the top 0.1% and the rest are not the result of unfettered capitalism but of unfettered government. Free markets do reward some merchants above others, but they also exact dire consequences for merchants and bankers who screw up. Only governments can save failed businesses. And governments have.

Since the global financial crisis (and long before), governments have mortgaged the young to feed the old and rich. Governments--the entities Francis would trust with everything--redistribute wealth from future generations to dying ones. And, apparently, the Pope likes that.  Or maybe he just doesn't understand what free market capitalism is.

2. Francis Errs in Asserting that Free Markets Have Never Lifted People Out of Poverty

Even Bono admits that capitalism is the only tool we have for generating excess wealth and value that can lift help people.

Aid is just a stop-gap. Commerce [and] entrepreneurial capitalism takes more people out of poverty than aid. In dealing with poverty here and around the world, welfare and foreign aid are a Band-Aid. Free enterprise is a cure. Entrepreneurship is the most sure way of development.

The United States generated more wealth than any nation in the world's history. And we're the most generous. Not just with our money, but with our time. Americans lead the world in per capita giving and in hours of volunteer work.

Without the excess wealth generated by ingenuity and industriousness, we would have nothing to give and no time to help. And free markets--the chance to bring great ideas to the world and earn a reward for doing so--drives that behavior.

3. Mostly, Francis Errs in Trusting Government

Francis says that "trickle down economics expresses a crude and naïve trust in the goodness of those wielding economic power." By implication, he, instead, places crude and  naïve trust in the goodness of those wielding military, taxation, and police power. Has he heard of the IRS? The NSA? Has he read about Obama's lies and the millions Obama has left without insurance?

Yes, capitalism is sick these days. It's infected with the virus of government. The answer isn't to outlaw free markets, as the Pope would, but to constrain and manage government.

**UPDATE**

Sheldon Richman makes an excellent point over on Reason.com:

When I say the pope gets some things right, just not in the way he intends, here’s what I mean: In an important sense, we do have “an economy of exclusion and inequality.” But it is not the free market; rather, it’s interventionism, corporatism, crony capitalism, or just plain capitalism — that is, the abrogation of the free market on behalf of special, mostly business, interests. The reigning system is riddled with exclusion and inequality, the victims of which are society’s most vulnerable people. It’s easy to overlook this because the system produces a great volume and variety of consumer goods that even low-income people can afford. (The system needs consumers, though without intervention we could expect prices to be lower.)

Be sure to read the whole thing here.

Here's the Pope's full paper.

 

Why Millennials Will Be Poor Their Whole Lives

Since the 1980s, the AARP has been lobbying Congress and the White House. The AARP has just one objective: to transfer the future income of the young and the unborn to people over 50.

Yes, it's completely immoral. The AARP is like the father who used his kid's Social Security Number to run up a ton of debt, then defaults. The kid is left with a permanently damaged credit rating, which prevents him from getting a good job or an affordable house.

Thanks, Dad.

But you don't have to take my word for it. Listen to Geoffrey Canada and Stanley Druckenmiller, partners in one of the most successful hedge funds in the world. And recipients of the money the government's stealing from kids.

(Note: Skip ahead to about the 10 minute mark.)

Geoffrey Canada ’74 and Stanley Druckenmiller ’75: Generational Theft from Bowdoin College on Vimeo.

President Barry Mills moderated the discussion “Generational Theft: How Entitlement Spending is Stealing Opportunity from America’s Youth,” among educator Geoffrey Canada '74, investor Stanley Druckenmiller '75 and members of a packed Pickard Theater audience who posed questions to the duo.

Their visit to campus May 7 follows a Wall Street Journal op-ed piece in which they write of their shared concern that “government spending levels are unsustainable.” Canada and Druckenmiller, though from different backgrounds and with different political beliefs, have united to bring their message to the masses, appearing on CNBC’s Closing Bell and Squawk Box, and MSNBC’s Morning Joe. They warn that failing to reform an entitlement culture, reaffirm long-run objectives, and re-establish a common purpose will mean diminished opportunities for America’s youth.

 

 

Bankers and Politicians Are Robbing People Everywhere

Before you shed tears for the plight of elite bankers, let this statement sink in:

Cyprus’ banking sector must shrink. As did Ireland’s, the hard way. What is essential, as every Irishman and woman will tell you, is that the politicians do not load up the weaker citizen’s/taxpayers’ shoulders with enormous debts on behalf of bankers that refuse to wither. Read more at http://www.nakedcapitalism.com/2013/03/yanis-varoufakis-while-waiting-for-cyprus-godot.html#dCKwchxGzzT2ljPx.99

Wall Street on Little Guy

That’s from Yanis Varoufakis, professor of economics at Athens University. It explains what’s going on throughout Europe in the United States.

Top bankers and politicians created a phony wealth system that crashed. Or is crashing. Instead of letting it crash and rebuilding on sound economics, the big bankers and politicians are a) loading us up with debt, or b) confiscating our savings.

The elites refuse to accept the consequences of their own failed system. Tyler Durden makes the point here on ZeroHedge.com:

Throughout all of this, the global elites have displayed consistently worsening signs of decadence, psychopathic tendencies, and overall detachment from reality.

The core problem here is that Westerners have ceded almost all political and economic power to the elites. Representative democracy was designed to prevent elites from accumulating power, but it only works if people hold onto their power jealously. Here’s how William F. Buckley put it in Up From Liberalism:

I will not cede more power to the state. I will not willingly cede more power to anyone, not to the state, not to General Motors, not to the CIO. I will hoard my power like a miser, resisting every effort to drain it away from me. I will then use my power as I see fit.

Buckley is dead, and so is his ethos.

Debt hasn’t diminished since the crisis began. It’s grown like an infected boil on the face of democracy.

As massive debts accumulate to governments and ever larger banks, the temptation among the elites to rob the rest of us grows stronger. And the longer we wait to pop this zit, the deadlier the pus explosion when it ruptures.

Government Planning Is Killing the Economy

Friedrich Hayek warned more than half a century ago that central planning doesn't work. Here’s why:

  • Central Planners (government) makes a plan
  • The plan includes specific expectations
  • The expectations are never, ever, realized
  • A “crisis” ensues
  • So the planners demand more control
  • And create more plans
  • Ad hoc
  • Willy nilly
  • Capriciously
  • So you must wait for things to settle down to make your decision

Today’s Wall Street Journal article about the fiscal cliff demonstrates the futility of central planning:

"We're all sitting on the sidelines right now wondering what's going to happen to us," said John Odland, chief financial officer at MacMillan-Piper Inc., a freight-transport firm in Seattle. "A lot of my contemporaries are feeling the same way, saying, 'Let's just wait and see what these knuckleheads do.' "

Why should private, free citizens have to wait on government for anything?

Here’s a better solution: get the damn government out of the economic planning business.

It’s true that individuals are no better at planning than government experts. But they’re no worse, either.  The difference, then, is the number of people affected by a plan that doesn’t work.

If Joe Shit the Ragman’s plan for his business or his family or his vacation fails, who’s affected?  Joe, maybe his wife, maybe his employees. And it stops there.

If Barack Obama’s plan or Ben Bernanke’s plan or Tiny Tim Geithner’s plan for the economy fails, who’s affected?  All of us.

Moreover, if Joe’s plan fails, it’s up to him and him alone to sacrifice while a better plan takes shape for him and is family.

But if a government plan fails, the government invents new powers, which always come at the expense of your personal power, new taxes, and new plans. From the same WSJ article:

Each scenario involves prolonged uncertainty. Most consumers would start to pare their spending after receiving smaller paychecks due to higher payroll-tax withholding. Income-tax refunds for 2012 could be delayed while the Internal Revenue Service programs its computers to account for tax changes. Government agencies could start cutting back, hurting employees and suppliers. Many other employers likely would slow hiring or cut jobs. And investors could eventually look at those risks and send stocks lower, threatening a downward spiral in consumer and business spending.

We are throw more than good money after bad; we are throwing away good lives after bad.

The only solution to the fiscal cliff problem is to STOP CENTRAL PLANNING, restore power to individuals to make decisions, and reinvigorate a sense of community so people are more likely to help their neighbors.

Nobody Is Telling You About The Regulatory Armageddon About To Swamp The US Economy

If you think federal regulation is bad today, just wait. You ain’t seen nothin’ yet.

By the EPA's own reckoning, the rule if implemented annually would cost American businesses $90 billion. But a related rule due to be taken up in December similarly would declare large swaths of the U.S. "closed for new business" until emissions are reduced to meet lower caps than exist today, says Anne Kolton, spokeswoman for the American Chemistry Council.

Those are just two of 600+ EPA regulations that the Obama Administration put on hold until after the election. (Source:  Barrons)

federalregister

From Enterprise Zones To Economic Dead Zones

Some of these regulations would put an outright ban on any new businesses across huge chunks of the United States.  Others would shut down the coal industry, once and for all, throwing tens of thousands of workers into long-term unemployment.

These regulations will begin rolling out this month. That’s another reason why smart businesses are stashing their cash. They have no idea what the regulations will mean to them.

Stocks Get Hammered

The DJIA fell more than 300 points today in the euphoria of Obama’s re-election. If these regulations hit the books, we might not see 13,000 Dow for a decade.

Elections have consequences. This one’s consequences could kill us.

Obama Shuts Down Another Small Business

200,000

That's the number of small businesses lost during the Obama Administration.

If re-elected, Obama promises to accelerate the policies that destroyed American jobs, investments, and companies.

http://youtu.be/NlFHrLeeJIU

Voting isn't enough. We need your help at 9966 Lin Ferry Drive, St. Louis, MO 63123.

Pick you day to work the phones and get out the vote:

  • Friday, November 2 Noon to 8 p.m.
  • Saturday, November 3 Noon to 5 p.m.
  • Monday, November 5 10 a.m. to 8 p.m.
  • Too late

 

 

 

You Have No Idea How Much Your Boss Pays in Payroll Taxes

America is suffocating under an amazing tax burden, but most Americans STILL underestimate how much their tax bill really is.  That’s because Washington has done a fantastic job of forcing employers to hide most of the taxes you pay.  If people had to see and deal with their total liability, the Democratic Party would be swept into the dust bin of history. taxes

Here are some frightening facts from Rasmussen:

  • Only 54% of Americans are aware that employers pay payroll taxes on their behalf
  • Of those who do understand this, on 18% grossly underestimate the dollar amount of the taxes their bosses pay on their behalf
  • Only 10% of Americans have a basic understanding of the tax burden placed on their employer on their behalf

I heard a caller to Rush Limbaugh a few weeks ago.  He was a painting contractor who’d been in business for 20 years.  He is shutting down his company. The combination of a horrible economy and the burdens of even more taxes on business, the added regulation under Obama’s administration, the burden of an onerous Obamacare tax avalanche, have combined to make it almost impossible to run a small business—unless that business services the government.

The Economy Is Getting Worse Thanks to Liberalism

  The horror in Aurora, Colorado, gave President Obama a little cover last Friday.  That's because the Labor Department announced that unemployment rose in 27 states.

President Obama promised to hold unemployment under eight percent if Congress passed the stimulus package in 2009. Congress did, but Obama failed.  Remember all those green jobs?  They're gone.

The problem isn't Barack Obama; the problem is liberalism.  

Liberals believe that only experts can make intelligent decisions. They point out that the Beta Max was a superior video cassette technology to VHS, but idiot consumers were too stupid to notice.

Yet, for all their wisdom, the experts seem unable to manage even their affairs.

Liberals often point to China as an example of how fabulous a controlled economy can be. But China's growth was largely cosmetic. The benefit of central control of the economy and the media was that China could hide its problems; it couldn't fix them. As a result, we know that Bejieng's sewer system doesn't work, state-controlled baby formula causes cancer, Chinese banks have been playing dangerous games with collateralized debt obligations-squared, and China's totalitarian population controls have produced a demographic cliff that could plunge the planet into a Great Depression.

Liberalism is the original good intention that paves the road to Hell.  

We can't blame all the problems with central planning on Obama.  But we can and should hold Obama to account for shoving a failed system of misery down America's throat.  We can point out that the man who claims government, not people, build businesses and create jobs is incapable of keeping even his softest promises of eight percent unemployment and a slowly recovering economy.  We can and should remind everyone that the man who wants to control all of the US economy struggles to manage the economics of his campaign.

Barack Obama did not invent the failed ideology of central planning, but as its leading proponent he deserves to suffer the same fate his policies have given to the US economy.