Progressive Policies Keep Failing

I laughed when I saw The Washington Post headline: “Minneapolis had progressive policies, but its economy still left black families behind.”

The media are so clueless. Instead of “but,” the headline should have said, “therefore,” or “so, obviously.”

Of course, progressive policies failed! They almost always do.

“If you wanted a poster child for the progressive movement, it would be Minneapolis,” says Republican Minnesota Senate candidate Jason Lewis in my new video. “This is the same city council that voted to abolish the police department.”

The council, which has no Republicans, spends taxpayer money on most every progressive idea.

They brag that they recycle most everything. They have a plan to stop climate change. They tell landlords to whom they must rent. They will force employers to pay every worker $15 an hour. They even tell supermarkets what cereal they must sell.

Despite such policies, meant to improve life for minorities and the poor, the Minneapolis income gap between whites and blacks is the second highest in the country.

While that surprises the media, it’s no surprise to Lewis, who points out, “When you take away the incentive for work and savings and investment, you get less of it!”

Exactly. When government sends checks to people who don’t work, more people don’t work. Guarantees like a high minimum wage raise the cost of potential workers, so some never get hired. High taxes to fund progressives’ programs make it difficult for businesses to open in the first place.

Lewis says; ” I’ve been touring businesses that were burned. They did not mention global warming, recycling, or the environment one single time. You know what they say? Give me low taxes and give me public order.”

Lewis says Minnesota is now a “command and control economy….They’re not even shy about it. (Congresswoman) Ilhan Omar said we need to abolish capitalism!”

Not exactly. But Omar did call for “dismantling the whole system of oppression,” including America’s economic systems that, “prioritize profit.”

Lewis says she wants to create “equal poverty for everybody.”

No, I push back, “She thinks her ideas will lift everybody up.”

“Show us, Ilhan,” he responds. “Where has it worked? Everything that you’re proposing hasn’t worked!”

He’s right.

But Cam Gordon, a current Minneapolis councilman, tells me the city’s economic “disparities were caused by a long trail of historic racism.”

He tweeted: “Time to end capitalism as we know it.”

He says that would be good because “we could have more democratic control of our resources.” Cam Gordon is the kind of guy who gets elected in Minneapolis.

“Every alternative to capitalism brings stagnation and poverty,” I say to him.

Gordon answers, “I think we can take care of each other better.”

Lewis points out that before COVID-19, “the people gaining the most were at the bottom end of the wage scale. Women, Hispanics, African Americans were gaining the most. A rising tide truly lifts all boats.”

He’s right again. In the past 50 years, while progressives attacked profits, capitalism—the pursuit of profit—lifted more than a billion people out of extreme poverty.

When I point that out to Gordon, he simply ignores my point about fabulous progress around the world and says: “The problem with capitalism as we know it is this idea that we have to have constant growth….Capitalism got us the housing crisis right now and…climate change. It’s actually going to destroy the planet.”

Sigh.

His Green Party’s “community-based economics” would give the community control over private property. Seems to me like community-based economics is just another way to say socialism. That’s brought poverty and tyranny every time it’s been tried.

“When socialism fails,” says Lewis, “the apologists always say, ‘We just didn’t do it enough, just didn’t do it the right way.’ (But) it’s always failed.”

Sadly, today in America, the progressives are winning.

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Want to Reform the Criminal Justice System? End the Drug War

Protesters say America’s criminal justice system is unfair.

It is.

Courts are so jammed that innocent people plead guilty to avoid waiting years for a trial. Lawyers help rich people get special treatment. A jail stay is just as likely to teach you crime as it is to help you get a new start. Overcrowded prisons cost a fortune and increase suffering for both prisoners and guards.

There’s one simple solution to most of these problems: End the war on drugs.

Our government has spent trillions of dollars trying to stop drug use.

It hasn’t worked. More people now use more drugs than before the “war” began.

What drug prohibition did do is exactly what alcohol prohibition did a hundred years ago: increase conflict between police and citizens.

“It pitted police against the communities that they serve,” says neuroscientist Carl Hart in my new video. Hart, former chair of Columbia University’s Psychology department, grew up in a tough Miami neighborhood where he watched crack cocaine wreck lives. When he started researching drugs, he assumed that research would confirm the damage drugs did.

But “one problem kept cropping up,” he says in his soon-to-be-released book, Drug Use For Grown-Ups: Chasing Liberty in the Land of Fear, “the evidence did not support the hypothesis. No one else’s evidence did either.”

After 20 years of research, he concluded, “I was wrong.” Now, he says, our drug laws do more harm than drugs.

Because drug sales are illegal, profits from selling drugs are huge. Since sellers can’t rely on law enforcement to protect their property, they buy guns and form gangs.

Cigarettes harm people, too, but there are no violent cigarette gangs—no cigarette shootings—even though nicotine is more addictive than heroin, says our government. That’s because tobacco is legal. Likewise, there are no longer violent liquor gangs. They vanished when prohibition ended.

But what about the opioid epidemic? Lots of Americans die from overdoses!

Hart blames the drug war for that, too. Yes, opioids are legal, but their sale is tightly restricted.

“If drugs were over the counter, there would be fewer deaths?” I asked.

“Of course,” he responds. “People die from opioids because they get tainted opioids….That would go away if we didn’t have this war on drugs. Imagine if the only subject of any conversation about driving automobiles was fatal car crashes….So it is with the opioid epidemic.”

Drugs do harm many people, but in real life, replies Hart, “I know tons of people who do drugs; they are public officials, captains of industry, and they’re doing well. Drugs, including nicotine and heroin, make people feel better. That’s why they are used.”

President Eisenhower warned about the military-industrial complex. America’s drug war funds a prison-industrial complex. Hart says his years inside the well-funded research side of that complex showed him that any research not in support of the “tough-on-drugs” ideology is routinely dismissed to “keep outrage stoked” and funds coming in.

America locks up more than 2 million Americans. That’s a higher percentage of our citizens, disproportionately black citizens, than any other country in the world.

“In every country with a more permissive drug regime, all outcomes are better,” says Hart. Countries like Switzerland and Portugal, where drugs are decriminalized, “don’t have these problems that we have with drug overdoses.”

In 2001, Portugal decriminalized all drug use. Instead of punishing drug users, they offer medical help. Deaths from overdoses dropped sharply. In 2017, Portugal had only 4 deaths per million people. The United States had 217 per million.

“In a society, you will have people who misbehave, says Hart. “But that doesn’t mean you should punish all of us because someone can’t handle this activity.”

He’s right. It’s time to end the drug war.

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Gouge Is Good

If you’ve bought anything in the past six weeks, you’ve seen shortages.  In grocery stores, you’ve see empty shelves.  Online, you’ve seen long waits.

If you know econ 101, there’s an obvious explanation: price-gouging laws.  When supply falls, the market’s normal reaction is to raise prices.  Government’s reaction, however, is to paint the market’s normal reaction as vicious exploitation – and order prices to stay flat despite reduced supply.  Shortages inevitably result.

While this story has great merit, you don’t have to look closely to realize that it’s not the full story of shortages.  Why not?  Because most businesses are neglecting a wide range of strategies to legally raise prices.   These strategies include:

1. Stop offering discounts. This is legally very safe, but the last time I shopped at Giant and Costco.com, many discounts remained.  At least at Giant, the discounts were on perishable goods, so this isn’t just a leftover from before the crisis.  Firms really do continue to sell below full price even when goods are flying off the shelves.  Why not just charge full price on every good in short supply?

2. Offer premium service. Stores can’t legally charge more for the same good.  Yet to the best of my knowledge, there is no legal impediment to offering a new good or service at a high price.  For example, stores could charge an entry fee or surcharge for shopping right after delivery trucks arrive.  (If that’s too blatant, they could just arrange for trucks to arrive right before the premium period).  Slight variation: Offer pricey preferred customer cards, so high-value customers don’t have to pay extra each time they shop.  My local bike shop sticks to a first-come-first-served model, so there are long lines for service.  They could easily offer “elite” or “platinum” or “preferred” drop-off service for double the price.

3. Impose (or raise) minimum purchase requirements.  Right now, there is a long wait for Instacart delivery in my area.  But you only have to order $50 to get delivery.  Why not a minimum order of $100?  $200?  Amazon, similarly, could limit two-day shipping to high-value orders.

4. Mandatory tipping.  Most delivery services strongly encourage or even require a tip.  Instacart, for example, has a built-in 5% tip.  They could easily raise it to 20% – then marginally cut delivery workers’ base pay so the company profits.

Why then don’t businesses apply these strategies until shortages vanish?  The usual story is that they’re guarding their reputation.  Economically illiterate customers see shortages as forgivable but price increases as vicious.  Profit-maximizing firms therefore appease them.  If customers feel like Costco is ripping them off during the crisis, Costco suffers in the long-run from loss of goodwill.

This story, too, has great merit.  But again, I doubt it’s the full story.  Beloved, high-profile companies like Costco might be acting prudently; when your reputation is solid-gold, you really don’t want to risk a media scandal.  But even a well-known firm like Giant could easily end most discounts without drawing much ire.  A newish firm like Instacart that’s exploding during this crisis could easily get away with high mandatory tips.  New customers won’t even realize that anything has changed.  And does anyone really expect my bike shop to suffer in the long-run if they offer premium drop-off service?

What then explains the legal and profitable price increases that aren’t happening?  My preferred explanation is that businesspeople – like most people – consider price increases during an emergency to be dishonorable.  And contrary to popular belief, the system generally puts fairly honorable businesspeople in charge.  The adage, “That’s just not good business” means a lot to the typical person who runs a business.  That’s why they try to make customers happy even when they know that repeat business is highly unlikely.

During normal times, businesspeople’s sense of honor helps the whole economic system run smoothly.  In a crisis, however, businesspeople’s own misplaced sense of honor prevents them from swiftly alleviating shortages with covert price increases.  Yes, price-gouging laws and customer outrage are important factors, too.  But if businesspeople felt morally justified in raising prices, they would be aggressively hunting for legal and psychological loopholes.  Few are.

I love business, and admire businesspeople. They’re doing a great job during this emergency.  Thank you, business, for keeping us alive while we cower.  But businesspeople could do even better if they believed more in themselves.  Populists notwithstanding, there is nothing “dishonorable” about raising prices to eliminate shortages.   If governments or customers refuse to see this great truth, there is nothing dishonorable about raising prices in less-visible ways.  Businesspeople, you do not merely have a right to “gouge.”  As long as shortages persist, gouging is the right thing to do.  Gouge is good!

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From Telework to Flexible Wages?

Lately I’ve been stunned by reports of nominal wage cuts.  They aren’t just in the news; several professionals that I personally know have received such cuts.  Employers routinely cut total pay during recessions by slashing bonuses and hours.  Even in good times, many employers cut real wages by freezing pay despite inflation.  Yet outright reductions of nominal base pay – hourly wages for hourly workers, base salary for salaried workers – have been exceeding rare for as long as we’ve had data.  Economists have debated whether downward nominal wage cuts are bad, but virtually all economists agree that downward nominal wage cuts are rare.

What on Earth is going on in today’s labor market?

The simplest explanation is that the current recession is terrible.  Quite right; maybe it’s twice as terrible as the Great Recession.  But last time around, I heard zero first-hand reports of nominal wage cuts, and near-zero such stories in the news.  I can understand a doubling of incidents, but not this.

Another tempting tale: Workers today realize that they must take pay cuts or lose their jobs.  Alas, this trade-off is on the table during every recession.  And in every prior recession, falls in nominal base pay have stayed very rare.  What then is really afoot?

Let’s begin with a primordial fact: The best explanation for nominal wage rigidity is psychological. When employers cut workers’ nominal base pay, workers feel robbed and resentful.   This hurts morale, which hurts productivity, which hurts profits.  In contrast, when employers start doing layoffs, the fearful remaining workers respond by working harder.   Logically, of course, there’s no reason for workers to feel more robbed and resentful about a 1% nominal cut in the face of 0% inflation than a 0% raise in the face of 1% inflation.  Human beings, however, are not so logical.

Why then are nominal pay cuts suddenly on the table?  You could say, “Workers have suddenly become more logical,” but as far as I can tell, they’re crazier than ever.  But psychologically speaking, there is one radical and unprecedented change in the emotional experience of labor in the time of coronavirus: the explosion of telework.  Until recently, only 3% of workers teleworked, and a large majority of these teleworkers probably dropped by the office at least every week or two.  Now the telework share has plausibly multiplied tenfold, and our former offices are all but abandoned.

Loneliness is only the most obvious psychological effect.  Teleworkers have also lost most of their opportunities to complain and hear complaints, to feel bitterness and sow bitterness, to feel aggrieved and seek revenge.  As a result, I speculate, the effect of nominal wage cuts on morale has never been lower.

When an employer cuts the pay of a face-to-face work team, the workers constantly remind each other of the perceived affront.  They work down the hall from the executive they hold responsible for the pay cuts.  They see which fellow workers are standing up for themselves, and who’s kowtowing to The Man.  That’s how the classic mechanism – wage cuts –> bad morale –> low productivity –> reduced profits – worked.  Now, in contrast, teleworkers are stuck at home with their families.  They’re juggling childcare, housework, and safety in a chaotic situation.  As a result, they have neither the energy nor the forum to kvetch – verbally or otherwise – with coworkers.  Today’s teleworkers talk to their peers to get the job done, then get back to business.  Supervisors who cut your pay now feel more like a tiresome video than a human villain, which quells the urge to settle the score.

Think about it this way: If your firm cut pay three months ago, what would have happened?  You would have arrived at work and started griping to your friends.  A few would philosophically adjust to the new normal, but a coterie of complainers would have whined, muttered, grumped, and sputtered for months.  In so whining, muttering, grumping, and sputtering, they would have disrupted not only their own work, but teamwork itself.

If your firm cut pay today, in contrast, you’d probably just read the email, groan, and resume your duties.  You might lament your fate to your partner or close friend.  Yet now that you’re teleworking, you plausibly won’t even mention the issue to a single coworker.  You almost certainly won’t lunch with coworkers to denounce the firm’s callousness and greed.  Stripped of this social feedback loop, neither morale nor productivity will fall much.  At long last, pay cuts finally do exactly what firms desire: mitigate losses by cutting costs.

On top of all this, executives and managers almost surely feel much less guilty about pay cuts than they ordinarily would.  Out of sight, out of conscience.

How can we test my story?  Most obviously, industries that switch to telework will be much more likely to impose nominal cuts.  To repeat, that means lower nominal base pay for salaried employees, and lower nominal wages for hourly employees.  In industries where some categories of workers switch to telework and others don’t, I also predict that the switching categories will be more likely to experience cuts.  (There, however, horizontal equity norms may get in the way.  If 95% of a firm’s employees telework, management might cheaply avoid outrage by also cutting pay for the 5% who work on-site).

Note: You don’t have to think that wage cuts are socially desirable to buy my story.  For a tenured GMU professor such as myself, nominal wage cuts are all pain, no gain.  That said, thirteen years after the Great Recession started, I remain convinced that nominal wage cuts are a greatly underrated way to alleviate the grave evil of unemployment.  Nominal wage cuts don’t merely save jobs within the firm; they also save jobs throughout the economy.  Keynes opposed wage cuts, but good Keynesians smile upon them.

Think of it this way: Suppose you have $1M total to pay workers.  Which is better for Aggregate Demand: Retaining your whole workforce and cutting pay 10% – or keeping wages constant and laying off 10% of your employees?  The latter route, though timeworn, reduces workers’ spending because the marginal propensity to consume falls with income – and reduces firm’s profitability in the process.

Does this make me optimistic about the economy?  Hardly.  We’re already in the midst of a second Great Depression, and even perfect nominal wage flexibility won’t restore normalcy anytime soon.  Still, when word of nominal wage cuts reaches my ears, I feel a glimmer of hope.  Unemployment will skyrocket.  Without nominal pay cuts, however, unemployment would have been worst yet.  Unemployment will take years to subside.  Without nominal pay cuts, however, unemployment would have lingered longer still.  As I wrote a decade ago:

Is labor market rigidity a market failure?  I’m afraid so.  But strangely enough, this market failure is largely caused by anti-market bias!  The main reason workers hate wage cuts is that they imagine that wage-cutting employers are satanically “unfair.”  If workers saw wage cuts for what they are – a full-employment mechanism – they’d sing a different tune.  While they wouldn’t be happy to see their wages cut, they’d grudgingly accept that a little wage variability is a fair price to pay for near-total employment security.  Once this economically enlightened perspective took hold, employers would eagerly cater to it – and the market failure would largely go away.

According to Peter Pan, “Everytime a child says ‘I don’t believe in fairies,’ there’s a little fairy somewhere that falls down dead.”  As far as I know, he’s wrong about fairies.  But if Peter had warned, “Everytime a person says, ‘I don’t believe in markets,’ there’s a worker somewhere that loses his job,” he wouldn’t have been far from the truth.  Scoff if you must!  People can and do cause market failure by believing in it.

Teleworkers still don’t believe in markets, but at least they’re less likely to tell each other, “I don’t believe in markets” – or act on their resentment.  Thank goodness for small miracles.

P.S. Disclaimer: The best predictor of future data is past data- and we should never say, “This time it’s different” lightly.  So I wouldn’t be shocked if aggregate data ultimately revealed continued severe nominal wage rigidity despite my current impressions of drastic change.  If so, consider this piece an imaginative yet regrettable attempt to explain “facts” that barely happened…

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Mexico: One Failed US War Doesn’t Justify Another

On November 4, ten dual US-Mexican citizens  — members of an offshoot sect of the Church of Jesus Christ of Latter-Day Saints — died in a highway ambush, apparently the latest casualties of rampant and violent drug cartel activity in northern Mexico.

US president Donald Trump promptly called upon “Mexico, with the help of the United States, to wage WAR on the drug cartels and wipe them off the face of the earth.  We merely await a call from your great new president!”

Mexican president Andres Manuel Lopez Obrador just as promptly rejected Trump’s proposal.  That’s not surprising. He ran for president on a platform that includes ending, not escalating, Mexico’s status as a battlefield in the decades-long US “war on drugs,” a war that created, and continues to empower, the cartels.

AMLO’s right.  Inviting direct US military intervention into Mexico’s internal affairs is not the solution.

The solution is for the US to re-situate American demand for recreational drugs from violent and corrupt “black markets” to peaceful legal markets.

After several decades of US regulatory, law enforcement, and military war on drugs, the “winners” of the war remain the cartels (who rake in billions serving customers forbidden to buy what they want legally) and US government agents (who dispose of huge budgets and earn comfortable salaries while boasting little impact on drug use at either the demand or supply ends).

Many (probably most) Americans like to get high.

Everything else being equal, they’d probably prefer to buy their marijuana, cocaine, heroin, and so forth from their local pharmacies, at reasonable prices and in known quantity, purity, and potency.

But if they can’t do that, they’re not going to stop getting high just because the US government tells them they must not. They’ll buy their drugs wherever they can find those drugs, even at the risk of being killed by the product or by the product’s sellers.

“Black market” sellers make bank on drugs because “white market” sellers don’t exist. The more money they make, the more they have to spend bribing government officials,  buying weapons with which to protect their drugs and their profits, and battling their competitors for market share with bullets rather than with lower prices or higher quality.

In the “war on drugs,” there was never any chance that the drugs would lose. Who does lose? All of us who continue to tolerate our rulers’ deadly and expensive folly.

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Chicago Teachers’ Strike Shows Why We Don’t Need Public Schools

As the Chicago teachers’ strike continues with no end in sight, 300,000 students spend another day outside of the public school classroom. Chicago’s mayor, Lori Lightfoot, says this is damaging to children.

“We need to get our kids back in school,” the mayor said Thursday, CNN reports. “Every day we are out, that hurts our children.”

But Are the Children Really Hurting?

As the Chicago strike shows, when government schooling is not the centerpiece of a child’s life, community organizations step up to provide support and care. Museums, churches, libraries, and a multitude of civic non-profits are opening their doors to children displaced by the teachers’ strike, and public parks and playgrounds abound.

Some of the organizations that are offering a safe place for children to gather include the YMCA and its 11 locations across Chicago. As CNN reports: “Depending on the location, these programs may include classes, swimming, math lessons, arts and crafts, and sports.”

The Boys & Girls Club of Chicago, as well as a similar but separate organization, the Neighborhood Boys & Girls Club, are open all day for children affected by the strike. Many arts organizations throughout Chicago are offering special programming for students in a range of topics, from theatre to dance to visual art.

The city’s aquarium is offering immersive exploration opportunities for the children, along with an after-school care option. Other science organizations are doing the same. Sports camps are sprouting through local athletic and recreational organizations, and area gyms are opening up and offering adult supervision.

Churches and religious organizations, including the Jewish Council for Youth Services and The Salvation Army, are providing care, activities, and in some cases meals. For the estimated 75 percent of Chicago children who usually receive their meals through the school cafeteria as part of the federal school lunch program, they can still go to their local school building, staffed by non-unionized administrators, and receive their eligible breakfast, lunch, and dinner meals.

Finally, there are the Chicago libraries, which are scattered across the city and open to everyone. Libraries are models of true public education, inviting all members of a community, regardless of age or background, to learn without the coercion characteristic of compulsory mass schooling.

Library patrons can take advantage of optional classes and lessons, ask for help when needed, or pursue their own curiosities using the library’s abundant physical and digital resources. Libraries are incubators of community-based, self-directed public education. As Ta-Nehisi Coates writes in Between the World and Me, which claimed the 2015 National Book Award: “I was made for the library, not the classroom. The classroom was a jail of other people’s interests. The library was open, unending, free” (p. 48).

What a Vibrant Civil Society Could Look Like

For many children in Chicago public schools, the classroom is quite jail-like, with metal detectors and armed security officers on campus, and school performance measures that should make us cringe. According to Chalkbeat, “nearly half of Chicago schools failed to meet the state’s threshold for performance on its new accountability system,” as evaluated by the 2018 Illinois Report Card.

Teachers’ strikes often show, however inadvertently, why we don’t need public schools to provide education to the public. Without government involvement and compulsion, civil society steps up and quickly mobilizes to care for children and families.

We see just a small glimpse of this in the brief time that the Chicago students have been displaced due to the teachers’ strike, but imagine how much more would emerge if the shadow of compulsory public schooling didn’t loom so large. Neighborhood organizations and businesses, churches and non-profits, non-coercive public spaces like parks and libraries, and families, would be empowered to support and educate the children around them.

Indeed, this is how education worked prior to the mid-nineteenth century passage of compulsory schooling laws that narrowed a broad definition of education into the singular concept of forced schooling.

Children don’t need government schools to educate them. Instead, they need a vibrant civil society that buttresses families and inspires communities to come together and educate their own children in a variety of ways using a variety of resources. The teachers’ strike impact only gives a glimmer of what a vibrant civil society could look like if it were consistently charged with caring for and educating children.

Far from hurting children, the Chicago teachers’ strike shows us the way to truly help them.

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