4 Ways Employers Respond to Minimum Wage Laws (Besides Laying Off Workers) – Article by John Phelan

## 4 Ways Employers Respond to Minimum Wage Laws (Besides Laying Off Workers) – Article by John Phelan

John Phelan
September 25, 2019
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Most of you will be familiar with a supply and demand graph. This shows a demand curve, which graphs the relationship between the price of something and the quantity demanded of that something, as well as a supply curve, which graphs the relationship between the price of something and the quantity supplied of that something. It is probably the most basic—and useful—model in economics.Whether the something in question is a good or a service, shoes or labor, the basic supply and demand model predicts that, ceteris paribus, an increase/fall in the price of something will lead to a fall/increase in the quantity demanded of that something—this is Econ 101.

In the context of minimum wage laws, this model predicts that setting a minimum wage above the equilibrium level or raising it will lead to a lower quantity of labor demanded. Often, people think this means fewer workers employed. So, when minimum wage hikes aren’t followed by increases in unemployment, people cite this as evidence that minimum wage hikes don’t reduce employment.

But a model is an abstraction from reality. In that messy reality, there are a number of things employers can do in response to a minimum wage hike that don’t involve laying off employees.

Remember, the simple supply and demand model says that increasing the price of labor leads to a lower quantity of labor demanded. But an employer doesn’t need to cut workers to achieve that. They can cut their hours instead.

Research from Seattle illustrates this. In 2014, the city council there passed an ordinance that raised the minimum wage in stages from \$9.47 to \$15.45 for large employers in 2018 and \$16 in 2019. In 2017, research from the University of Washington examining the effects of the increases from \$9.47 to as much as \$11 in 2015 and to as much as \$13 in 2016, found:

…the second wage increase to \$13 reduced hours worked in low-wage jobs by around 9 percent, while hourly wages in such jobs increased by around 3 percent. Consequently, total payroll fell for such jobs, implying that the minimum wage ordinance lowered low-wage employees’ earnings by an average of \$125 per month in 2016. [This was later revised to \$74]

As the model predicts, the price of labor increased, and the quantity of labor demanded fell.

A follow-up paper looked at the impact on workers who were employed at the time of the wage hike, splitting them into experienced and inexperienced workers. It found that, on average, experienced workers earned \$84 a month more, but about a quarter of their increase in pay came from taking additional work outside Seattle to make up for lost hours. Inexperienced workers, on the other hand, got no real earnings boost—they just worked fewer hours. Again, as the model predicts, the price of labor increased and the quantity of labor demanded fell. Instead of more money, they got more free time.

An employer could try to raise worker productivity to match the new minimum wage. One way to do this is simply to work their employees harder.

One paper by Hyejin Ku of University College London looks at the response of effort from piece-rate workers who hand-harvest tomatoes in the field to the increase in Florida’s minimum wage from \$6.79 to \$7.21 on January 1, 2009. It found that worker productivity (i.e., output per hour) in the bottom 40th percentile of the worker fixed effects distribution increases by about 3 percent relative to that in the higher percentiles. The author concludes:

These findings suggest that while an exogenously higher minimum wage implies a higher labor cost for the firm, the rising cost can be partly offset by the increased effort and productivity of below minimum wage workers.

Another recent study by economists Decio Coviello, Erika Deserranno, and Nicola Persico looks at the impact of a minimum wage hike on output per hour among salespeople from a large US retailer. “We find that a \$1 increase in the minimum wage (1.5 standard deviations) causes individual productivity (sales per hour) to increase by 4.5%,” they note.

Importantly, tomato harvesting and sales are labor-intensive work. Any increase in output per hour can be assumed to come from increased physical effort.

Supporters of higher minimum wages talk almost exclusively about wages. But this is only one part of a worker’s total remuneration. The cost of an employee to the employer is not just the wage but total remuneration, including benefits such as health insurance. If legislation increases the wage, the employer can keep overall remuneration the same by reducing other elements.

A new paper from economists Jeffrey Clemens, Lisa B. Kahn, and Jonathan Meer finds that this is what happens in practice. The authors “explore the theoretical and empirical relationship between the minimum wage and fringe benefits, with a focus on employer-sponsored health insurance.” They find:

[There is] robust evidence that state-level minimum wage changes decreased the likelihood that individuals report having employer-sponsored health insurance. Effects are largest among workers in very low-paying occupations, for whom coverage declines offset 9 percent of the wage gains associated with minimum wage hikes. We find evidence that both insurance coverage and wage effects exhibit spillovers into occupations moderately higher up the wage distribution. For these groups, reductions in coverage offset a more substantial share of the wage gains we estimate.

Simply put, as the minimum wage rises, other elements of worker compensation fall.

If a business that plans to add 10 jobs over a year cancels these plans on the passage of a minimum wage hike, those 10 jobs have been destroyed without ever showing up in the data.

Economists from Washington University in St. Louis use wage data on one million hourly wage employees from over 300 firms spread across 23 two-digit NAICS industries to estimate the effect of six state minimum wage changes on employment. They find “…that firms are more likely to reduce hiring rather than increase turnover, reduce hours, or close locations in order to rebalance their workforce.”

As we look at responses over time, we also see the possibility that employers can substitute capital inputs for labor inputs.

Economists Grace Lordan and David Neumark analyze how changes to the minimum wage from 1980 to 2015 affected low-skill jobs in various sectors of the US economy, focusing particularly on “automatable jobs – jobs in which employers may find it easier to substitute machines for people,” such as packing boxes or operating a sewing machine. They find that across all industries they measured, raising the minimum wage by \$1 equates to a decline in “automatable” jobs of 0.43 percent, with manufacturing even harder hit.

They conclude that

groups often ignored in the minimum wage literature are in fact quite vulnerable to employment changes and job loss because of automation following a minimum wage increase.

Minimum wage hikes are bad public policy. Economics, like all social sciences, has difficulty testing its models against data, but even where we can, the evidence bears this out.

John Phelan is an economist at the Center of the American Experiment and fellow of The Cobden Centre.

The Right to Repair: Shouldn’t Americans Have the Right to Fix Their Own Stuff? – Article by Brittany Hunter

## The Right to Repair: Shouldn’t Americans Have the Right to Fix Their Own Stuff? – Article by Brittany Hunter

Brittany Hunter
September 2, 2019

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If you’ve ever felt the hurt of shelling out \$200 to fix your MacBook or repair your broken iPhone screen, then you might know how important it is to break the monopolistic hold huge corporations have on the world of consumer product maintenance, which is where the right to repair comes in.

Recently, Senator Bernie Sanders unveiled his plans to overhaul the agriculture sector and “Revitalize Rural America” on his 2020 presidential campaign website. While much of the text in this section is predictable and on brand for Sanders—who blames the business sector and capitalism for most problems, there is one area that stands out: his stance on the issue of the right to repair.

“In rural America today, farmers can’t even repair their own tractors or other equipment because of the greed of companies like John Deere,” the site reads. It then promises that, if elected, Sanders will “pass a national right-to-repair law that gives every farmer in America full rights over the machinery they buy.”

Sanders may be wrong on a number of issues, but when it comes to a consumer’s right to repair, he is absolutely correct. And while he may not recognize it, his stance on this issue is actually more aligned with free-market economics than it is with democratic socialism.

For anyone unfamiliar with the term, “right to repair” refers to each individual’s right to fix or alter their own purchased property without having to go directly through the manufacturer to do so. Often times, this means paying high costs or facing negative consequences—like a voided warranty—if repairs are made by a third-party or by the individual consumer themselves.

Today, many have to pay a large fee just to have their equipment digitally unlocked by John Deere before it can be fixed.

It might seem almost absurd that the “right to repair” is even an issue, especially since many of us have routinely attempted, to varying degrees of success, to fix many of our own household appliances and devices. Yet, many corporations and companies from PlayStation to Apple have erected barriers that make it harder for consumers to repair the property that belongs to them.

As Wired explains:

Increasingly, companies use a variety of tactics to block access to repair. Companies either don’t sell replacement parts, or they sell them at big markups. They don’t make repair information, such as manuals or schematics, publicly available or open-source. They manipulate the software so that if you get unauthorized repairs done, the device locks until the manufacturer unlocks it. This forces the customer to take any problem to the original manufacturers, who can charge whatever they want. This also means the manufacturing companies have all the cards to decide if, when, and how much it costs to fix something.

John Deere, who Sanders mentions specifically because of the role the company plays in the agricultural sector, has been a huge culprit of inhibiting a consumer’s right to fix what is rightfully theirs, which has caused major financial burdens for farmers.

As farming equipment has become more sophisticated and tech-reliant, it has become increasingly more difficult for farmers to perform their own repairs. Today, many have to pay a large fee just to have their equipment digitally unlocked by John Deere before it can be fixed. And if they cannot afford to pay the manufacturer’s price, they are unable to use their equipment to earn a living. However, John Deere is just one company of many utilizing this strategy.

Another company inhibiting a consumer’s right to repair is Apple. Apple relies on what are called “End User License Agreements” to monopolize the repair of its products. If you’ve ever noticed that some iPhone repair establishments boast of being an “Apple Authorized Dealer,” this means a shop has had to pay a fee to Apple in order to be given the authority to repair its products, effectively monopolizing who is allowed to fix Apple products.

Unfortunately, a consumer does consent to the terms of the contract when buying a product with a manufacturer’s warranty.

This causes prices to go up for consumers who are limited as to where they can take their devices to be repaired. For those who choose to go to an unauthorized dealer, their warranties with Apple become void.

In addition to Apple and John Deere, the video game industry is also guilty of impeding the right to repair. They do this by attempting to control who is allowed to repair their gaming consoles. In 2017, The Entertainment Software Association, a trade organization that includes Sony, Microsoft, Nintendo, and others, worked diligently to block legislative efforts in support of right to repair legislation in Nebraska. Additionally, both Sony and Microsoft have “tamper-proof” stickers on their consoles, which warn the user that their warranty is void if they attempt to fix their device themselves.

Although this is most certainly a slimy move by many corporations to void warranties, make extra money on repairs, and force consumers to buy completely new products, a consumer does, in fact, consent to the terms of the contract when buying a product with a manufacturer’s warranty.

However, this situation became especially frustrating when both the PlayStation 3 and the Xbox 360 had significant, widespread problems that left many consoles broken and useless to users. While Xbox 360s plagued by the infamous “red ring of death” were refurbished free of charge, so long as consumers were willing to send back their machines to Microsoft for repairs, PlayStation 3 consoles cost \$200 to be fixed.

The flaws in both systems did not sit well with the gaming community, who were unimpressed with the handling of the situation. Had independent parties been allowed to fix these consoles, both companies might have saved themselves from angry consumers who were dealing with a manufacturing flaw and not a problem born of their own doing.

Interestingly enough, these “tamper-proof” stickers are actually illegal under a federal law called the 1975 Magnuson-Moss Warranty. However, most consumers cannot afford to pay all the legal costs associated with taking these giant corporations to court. And thus, most never challenge the warranties. Not to mention, so long as no one is being physically harmed, passing legislation that restricts how a private company can conduct business is not an ideal solution, even if its actions are shady.

Lexmark placed a chip in its single-use cartridges that rendered them useless if a consumer attempted to refill it with ink.

Lexmark, the printer company, took the fight against the right to repair even further than these other companies, eventually arguing its case in front of the Supreme Court in 2017. Everyone with a printer knows that it is exorbitantly expensive to replace the ink cartridges. Impression Products wanted to help consumers save money by refilling their existing Lexmark printer ink cartridges with toner instead of having to buy an entirely new cartridge.

Lexmark had placed a chip in its single-use cartridges that rendered them useless if a consumer attempted to refill it with ink. Impression Products, along with other small companies, found a way to disable the chip and refill the cartridges at a low cost.

Impression Products’ innovative solution to a frustrating consumer problem didn’t sit well with Lexmark, who sued for patent infringement and fought the company all the way to the highest court in the land. Unfortunately for Lexmark, the court ruled against it, declaring that the company’s patent rights were exhausted with the first sale of its toner cartridges and that consumers had every right to alter or fix property they rightfully owned.

To some extent, Sanders is correct to call out corporate greed over the struggle for a consumer’s right to repair. Many corporations resort to shady tactics in order to charge consumers more to fix their products or force them to buy entirely new products, as Lexmark has demonstrated.

The antidote to corporate greed is actually found within free market principles.

However, whether Sanders and his supporters realize it or not, above all, the argument in favor of the right to repair is actually an argument in favor of private property rights—something democratic socialists are typically against.

Once a product is purchased and money exchanges hands, the consumer becomes the sole owner of said property. This gives them the right to alter or repair a product in any manner they see fit. If manufacturers can literally remotely lock you out of your own property for having “unauthorized” repairs done, effectively holding your property hostage until you take it to an authorized dealer or until you pay their ransom to get it back, then whose property is it?

Sanders might not be a fan of big corporations, but the antidote to corporate greed is actually found within free market principles, like an individual’s right to do as they will with their own private property.

What That Giant Asteroid of Gold Would Really Do to the Economy – Article by David Youngberg

## David Youngberg

### July 22, 2019

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In Greek mythology, Psyche was a woman of such beauty that she inspired jealousy in the love goddess Venus. The 19th-century Italian astronomer Annibale de Gasparis named a massive asteroid after her. How appropriate that it turns out that 16 Psyche, one of the biggest asteroids in the asteroid belt, is made out of a metal famous for inspiring lust: gold.

Unlike gold discoveries of the past, there’s no rush to harvest Psyche. NASA wants to send a probe only to study it, prompting several articles to erroneously breathe a sigh of relief. According to one:

….if we carried [Psyche] back to Earth, it would destroy commodity prices and cause the world’s economy – worth \$75.5 trillion – to collapse.

No one tries to explain how cheap gold would cause an economic collapse, and for good reason: it wouldn’t.

Psyche has a lot of gold—about \$10,000 quadrillion worth at current prices. The eye-catching headlines that claim it’s enough gold to make “everyone on earth a billionaire” are, of course, complete fantasy. Selling that much gold would cut prices nearly to zero.

Harvesting Psyche would not cause an economic collapse.

If gold was still used for money, that much gold would create massive inflation, resulting in a lot of economic hardship. No country uses the gold standard anymore, so that’s hardly a concern. Rock-bottom gold prices would certainly be devastating for gold mining companies and people who keep their wealth in gold bars. That’s really bad for them, but they’re a tiny part of the global economy.

Perhaps the confusion rests in simple reverse causation. Recessions definitely cause lower commodity prices, but lower commodity prices cause recessions no more than umbrellas cause rain.

Harvesting Psyche would not cause an economic collapse. If that much gold could cheaply be brought to market it would be a boon, not a bust. It’s impossible to predict what a world of cheap gold would look like, but the story of aluminum gives us a hint.

Even though it’s the most abundant metal on the planet, most aluminum is trapped in bauxite and was difficult to purify for most of human history. Pure aluminum was incredibly rare, and there was once a time when the stuff of soda cans was more precious than gold. Aluminum bars were displayed next to the French crown jewels, and pure aluminum caps the Washington Monument.

Cheap gold probably won’t give us an economic boom, but that doesn’t mean it wouldn’t be an economic boon.

Techniques like the Hall–Héroult process changed all that. What was once the metal of monarchs and monuments became readily available to everyone. It’s so cheap that we now use it in fishing boats, airplanes, and beer kegs. Its foil version keeps food fresh—we throw aluminum away all the time.

Making aluminum cheap didn’t cause an economic collapse. Quite the opposite. It made society wealthier because refining improvements made everything else cheaper, thereby creating new opportunities. Wood that once went for beer kegs could be used for something else. Aluminum boats don’t corrode in water, and this application freed up steel and timber that would otherwise be used to replace degrading vessels. Modern airplanes wouldn’t even be possible without aluminum, and their existence frees up fuel, time, and materials that would have otherwise gone to passenger ships and trains.

True wealth is not found in precious metals, and Bloomberg’s Noah Smith rightly points out that harvesting Psyche won’t cause a new industrial revolution. But he goes too far when he claims that it won’t make society richer because, holding everything else constant, a cheaper resource is the definition of economic progress. It’s only a question of magnitude.

If a future entrepreneur were to harvest Psyche, it would certainly be devastating to the gold industry. For everyone else, it would be a stellar improvement.

Harvesting Psyche, if it can be harvested at the right price (a big if), would make society richer because that much gold would allow us to reallocate our efforts to other endeavors. No one knows what exact effects cheap gold would have because the price of gold has never been anywhere near zero. While gold has limited production applications now, who knows how people will adapt if gold is functionally free? There are substitutes, and there are substitutes for substitutes.

Gold, for example, is incredibly ductile and an excellent conductor of electricity; perhaps houses would be wired with gold instead of copper, freeing up copper that could be used in other ways. Or maybe there’s an industry that’s only possible with cheap gold, like aviation is for aluminum. We can’t look at how gold is used now, with its sky-high price, and assume it’ll be the same with a rock-bottom price. Cheap gold probably won’t give us an economic boom, but that doesn’t mean it wouldn’t be an economic boon.

If a future entrepreneur were to harvest Psyche, it would certainly be devastating to the gold industry. For everyone else, dirt-cheap gold would be a stellar improvement.

#### David Youngberg is an associate professor of economics at Montgomery College in Rockville, MD.

Jessica Milne – Presentation on Decentralizing Trust at the California Transhumanist Party Leadership Meeting

## Jessica Milne – Presentation on Decentralizing Trust at the California Transhumanist Party Leadership Meeting

Jessica Milne

The California Transhumanist Party held its inaugural Leadership Meeting on January 27, 2018.

Jessica Milne, the California Transhumanist Party’s Director of Information Science and Technology, delivered a presentation entitled, “De-Centralizing Trust: A map to a better tomorrow”, on the subject of organizational dynamics and the various roles individuals tend to fall into in today’s organizations (as well as whether there might be a better way). This video includes a recording of the presentation and the subsequent interaction with the audience, including U.S. Transhumanist Party Chairman Gennady Stolyarov II, California Transhumanist Party Chairman Newton Lee, and California Transhumanist Party Director of Networking Charlie Kam.

Watch the first video from the California Transhumanist Party Leadership Meeting, featuring a presentation by Newton Lee and ensuing discussion on Transhumanist political efforts, here.

Visit the website of the California Transhumanist Party:http://www.californiatranshumanistparty.org/index.html

Read the U.S. Transhumanist Party Constitution: http://transhumanist-party.org/constitution/

(If you reside in California, this would automatically render you a member of the California Transhumanist Party.)

The Attack on Hobby Lobby Is Incoherent and Unjust – Article by Jeffrey A. Tucker

## The Attack on Hobby Lobby Is Incoherent and Unjust – Article by Jeffrey A. Tucker

Jeffrey A. Tucker
July 13, 2017
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The mainstream press has accused Hobby Lobby, a great and beloved American company, of hypocrisy, unchristian behavior, smuggling, stealing, and even funding terrorism. As punishment, and concluding an investigation that has been going on for six years, the US government has extracted from the company a fine of \$3 million, and the company is sending to the government property it bought fair and square.

What horrible things did the company do? It purchased from sketchy sources in the Middle East thousands of ancient artifacts, including extremely rare cuneiform tablets. The purpose of such purchases – the Green family that owns Hobby Lobby spent its own money – is to complete an exciting project in the nation’s capital, the building of a new museum called the Museum of the Bible that will be open to the public in November.

For its efforts to save ancient historical artifacts and put them on display for educational purposes, the company has been declared guilty of trafficking war loot. And the property it bought? It is presumably going to be owned now by the US government – and maybe put in a warehouse and forgotten, like the disgraceful scene from the Raiders of the Lost Ark.

The War Caused This

And yet, it was the chaos of the Iraq War itself that brought these artifacts to the black markets to begin with. Previously, one supposes, they were claimed by Saddam Hussein as the national property of the government that the U.S. overthrew. They were pillaged by traders in the midst of the confusion that the US had not properly prepared for. This was nearly 15 years ago, and, presumably, the artifacts have changed hands many times.

Given how valuable these items are, and how little care the US government showed them, there is a sense in which the black market deserves praise. There was no longer a regime in place to claim ownership. The treasures were not destroyed or forgotten. Rather, they were preserved in the care of new owners and traders who understood their value – far more so than the marauding occupiers who allowed a birthplace of civilization to be pillaged without a thought.

Hobby Lobby – scrupulously and motivated by genuine piety – was only seeking to recover them and put them on display to increase public awareness of their value and what they represent. It is not the company’s fault that these treasures were floating around and changing hands all over the Middle East. Hobby Lobby didn’t cause the war. It didn’t steal a single thing from anyone. What the company was doing was systematically buying them from criminals, gangs, and shadowy forces with an eye toward keeping them safe and showing them to the public.

Hobby Lobby deserves praise, not condemnation, for these actions.

The most preposterous claim is that what the company did was unchristian. This is a jab at the company culture, of course, which is openly evangelical and has otherwise embroiled the company in public controversy. The Supreme Court decided in favor of its claim that it should not be forced to provide medical services to its employees. It was the first time in US history that the courts said that a for-profit company enjoys certain rights to religious liberty – and the partisans of Obamacare have never forgiven the company for that reason.

It’s like the whole of the social-democratic opinion cartel got on board with a plan: get Hobby Lobby!

False Records

What about the claim that there was fraud involved in the shipping of items themselves? According to reports, the company acquiesced to falsified shipping records in order to disguise the contents of the packages.

This strikes me not as fraud – who is actually being defrauded here? – but rather very smart and strategic behavior. What was the company to do? Put a big stamp on the packages that says PRICELESS ARTIFACTS FROM ANTIQUITY INSIDE? The efforts to disguise the contents were consistent with the care that the company was taking with the property that it justly acquired on the market.

In fact, by not insuring the contents as much as the shippers might have been willing to cover, the company was bearing the full liability that would have been associated with theft. Therefore it had every incentive to obscure the nature of the contents. No one got hurt by their doing so.

Making the Market

But there is yet another claim making the rounds. In the words of professional Hobby Lobby haters Joel Baden and Candida Moss:

If collectors like the Green family were unwilling to purchase unprovenanced antiquities — items that do not have a clear and clean history of discovery and purchase — the black market would dry up. As long as there are buyers, there will be sellers. It is because collectors like Hobby Lobby are willing to pay a premium and look the other way that looting continues. They dramatically expanded the market for biblical antiquities in the late 2000s.

This is just crazy talk. Are we really supposed to believe that if the Greens had not put a value on ancient Mesopotamian artifacts that these items would thereby fall in value for everyone else? This is preposterous actually. And think about this: if the treasures actually fall to zero price, there would be no incentive to care for them and display them for the public. It is precisely because The Green family and so many others value them that they have been preserved.

These writers are living in a fantasy world. Actually, the black market has done more for the cause of historical preservation than either Saddam Hussein or the occupying military forces ever did.

Ownership Records

There is the final matter of ownership records. These are obviously controversial for property that is, after all, thousands of years old. What to do? Hobby Lobby had the right solution: they should be owned by the highest bidder and displayed for the edification of the public. As a private enterprise, it could have experimented with using the right technology – blockchain – to create immutable records, along with the complete history. That way, there would never again be a controversy.

Much the same is already being done in the art world to prevent forgeries, track ownership, and verify the authenticity of works of art. This process needs to commence with ancient artifacts too, for the sake of posterity and the future.

What Hobby Lobby was doing could have finally saved this sacred history on behalf of the whole of humanity. Sadly, it will not be so, simply because some bureaucrats and petty pundits are working through their resentments of the company, fining them and dragging its reputation through the mud. Hobby Lobby wasn’t stealing; it is being stolen from.

Jeffrey Tucker is Director of Content for the Foundation for Economic Education. He is also Chief Liberty Officer and founder of Liberty.me, Distinguished Honorary Member of Mises Brazil, research fellow at the Acton Institute, policy adviser of the Heartland Institute, founder of the CryptoCurrency Conference, member of the editorial board of the Molinari Review, an advisor to the blockchain application builder Factom, and author of five books. He has written 150 introductions to books and many thousands of articles appearing in the scholarly and popular press.

He Was a Middle-School Loan Shark – Article by Jeffrey A. Tucker

## He Was a Middle-School Loan Shark – Article by Jeffrey A. Tucker

Jeffrey A. Tucker
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It came out in passing last night, in discussions with a smart 17-year old, that he got in deep trouble in middle school. He was accused of loan sharking, and forced to do detention.

See if you think there is anything wrong with what he did.

The middle-school cafeteria had candy machines. Every candy cost a dollar. My friend carried extra ones with him. He would buy candy, and immediately people would ask if he could loan them money. He did. More and more people asked. He continued to loan people money, and only some would pay him back. His charity was losing him money.

So he had an idea. He would loan anyone a dollar. However, the next day they had to pay him two dollars. This was great because it weeded out people who were not serious about their candy needs, and got rid of those who had no intention of paying him back. His idea helped to ration his scarce resources. It had the additional advantage of making him some money, which incentivized him to make funds available.

Everyone was happy. He made money. They got their candy. Most everyone paid him back. If he began the week with \$5, he ended the week with \$10. This was nice. No one was hurt.

If a person was late in paying, he added an additional dollar for each day. Otherwise, why would people pay sooner rather than later? So if you borrowed one dollar on Monday, and didn’t pay until Friday, you would owe \$5.

Of course he did have to start keeping books on who borrowed from him. He would sometimes have to hunt them down the next day. Sometimes people need gentle reminders, of course. Mostly people paid.

He was also rather merciful. Once a person got behind by three full weeks. She technically owed \$15 on a \$1 loan. He came to her and said, “let’s settle this debt today. I’ll take \$10 and we can call it even.” She was relieved and happily paid.

My friend was making lots of money. And why? Because many students wanted candy and failed to make the proper financial preparations to purchase it. He was there to facilitate an exchange. They would get candy now, which is what they wanted, and he would be rewarded for anticipating their desires.

So far, I see nothing wrong with this at all.

However, you could express this in more severe terms. People often criticized payday loans for charging an annual percentage rate of 100-700%. Scandalous, right?

Well, think about the rate my friend was charging. It turns out to be 26,000%, based on \$1 per weekday.

Keep in mind that we are talking about a 13-year old kid here. This is not exactly a member of the Medici banking family here. He was just trying to help people with a two-party win.

But as his financial holdings grew, and his practices became more formalized, his business became ever more lucrative. That’s when news of his empire began to leak to teachers and parents.

Predictably, there was mass outrage. He was hauled in and accused of “loan sharking.” There was a trial. He was declared guilty. He was put on detention and humiliated publicly.

Once he was out of the picture, kids no longer had any means of getting financing for their candy fixes. They just stood in front of the machines staring blankly. It’s hard to see how the overall middle-school economy was improved by this crackdown.

The response of the parents and teachers was a typical example of mob behavior against intelligent capitalist practices. It’s been going on for hundreds of years, particularly hurting people who make money with their minds through financial savvy.

This was the basis of anti-Semitism from the Middles Ages through the Nazi period, since, as Milton Friedman has explained, Jews have traditionally specialized in the enterprise of money-lending.

And it goes on today, with all the frenzy against usury, payday loans, pawn shops, and so on. Even the Occupy movement sampled some of this populist outrage against money-making.

Damnant quod non intellegunt. They condemn what they do not understand.

Jeffrey Tucker is Director of Content for the Foundation for Economic Education. He is also Chief Liberty Officer and founder of Liberty.me, Distinguished Honorary Member of Mises Brazil, research fellow at the Acton Institute, policy adviser of the Heartland Institute, founder of the CryptoCurrency Conference, member of the editorial board of the Molinari Review, an advisor to the blockchain application builder Factom, and author of five books. He has written 150 introductions to books and many thousands of articles appearing in the scholarly and popular press.

My Childhood as a Renegade Entrepreneur – Article by Derek Magill

## My Childhood as a Renegade Entrepreneur – Article by Derek Magill

Derek Magill
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For most of my life I wanted to be a businessman.

As early as preschool, I would insist on wearing only business attire to class every day. And by business attire, I mean I’d put on one of my father’s button-down shirts and tuck it in with a ridiculously oversized pair of slacks that my brother had worn.

When I got older this interest began to manifest itself in ways that caused conflict in class.

The Young Entrepreneur
In 4th grade, I made a little business out of reselling Livestrong wristbands after class. I made about \$150 with this side business before the school told me I needed to stop. My classmates were disappointed because I was the only reliable source when it came to getting bands. Plus, I had recently started purchasing Freedom Bands, which were available in far more colors than the Livestrong yellow. Needless to say, my customers were always satisfied.

In 6th grade, I loaned a friend money for a cookie but insisted on there being a 25 cent interest fee tacked onto each day he failed to repay. It took him two weeks and he paid the amount he owed, plus interest, without complaint.

The school found out and my parents received a call home.

What I always found interesting was that there was never any sort of explanation offered as to why my behavior was “bad.” It was just simply against the rules.

My classmates loved my attempts at offering services, but there was always the ever-present, and often unseen, force of teachers and school administrators hovering nearby waiting to stop our transactions.

High School Antics
As the associated student body president, I was required to work in the student store. I developed a practice of accepting tips in the form of the spare change students didn’t want to carry around.

I had a jar on the counter, like any food establishment might, and I would casually suggest students leave their change after a purchase. This was an innocent, voluntary donation in which I’d make a little bit of money every day.

But of course, my teacher found out and her response was a swift write-up. Again, I was not told why my actions were wrong.

It’s Only Fair If Everyone Profits
One day, the administration decided to host a club fundraising festival where each club was allowed to sell one item purchased from a grocery store at lunch in order to raise funds for its club—the only time they ever broke the cafeteria monopoly.

I left campus to purchase 150 burgers from Wendy’s for \$1 each. I then sold them for \$5 per burger on campus, and gave away a free Arizona Iced tea with the burger, which undercut the two other vendors selling Arizona Iced tea.

We eclipsed the rest of the fundraising group that day by over 200 percent and the school accused us of cheating and being greedy.

They confiscated most of the funds and distributed it among the other students to make it more “fair.”

At last the truth had come out in full. It had taken almost eighteen years but I had the answer they had never given me before: my teachers hated the free market.

The administrators regarded commerce as dirty. They didn’t see the value I created for students who wanted something better than cafeteria food for lunch. They saw value that had been acquired at the expense of others.

As I look back now with more knowledge and experience, I’ve come to the conclusion that this experience was both beautiful and saddening.

As children, we are born capitalists. We have no deep philosophies or moralities but we organize ourselves naturally around mutual exchange because we recognize quickly that life gets better if we do.

We trade cards, toys, our lunches, and other things we value for the things our friends value and rarely do we have trouble working out disputes. We don’t do it because we care consciously about free markets — we don’t even know the concept. Nor do we need to. Markets don’t require everyone to know their importance consciously. They just require people to be left alone.

It takes a lot of schooling to kill these natural inclinations towards freedom. Teachers and administrators stop these interactions on the playground, and in the classroom they teach material that distorts and obfuscates the truth. The process of schooling is the process of taking our innate tendencies towards liberty and destroying them.

As my friend Isaac Morehouse wrote in a comment when I shared this story on Facebook:

Is it any wonder why Ayn Rand is making such a resurgence among high school students?

Derek Magill is a college dropout, marketer, business strategist and career expert. He is currently the Director of Marketing at Praxis and has consulted with companies such as Voice & Exit, the Foundation for Economic Education, Glockstore, Colliers International, Daily Caller, and Undertech.

Derek is the author of How to Get Any Job You Want.

Kicking Out the Coders Is Not a Good Way to Reform Immigration – Article by Jeffrey A. Tucker

## Kicking Out the Coders Is Not a Good Way to Reform Immigration – Article by Jeffrey A. Tucker

Jeffrey A. Tucker
******************************

Coding is a job you just can’t fake. Your stuff either works or it doesn’t. You can either do the job or you can’t. So ranking people according to skill is much easier. It’s a profession that is intensely competitive, and clearly not for everyone.

I can remember so well sitting around the lunch table with some employees at Google’s headquarters. Forty-five minutes in, everyone started getting antsy to get back to work. In the blink of an eye, they disappeared to get back to their desks. They are profoundly aware that performance is everything, and other great performers are ready to displace them at anytime.

Because the US is the world center of digital tech development, the demand for high-level coders has never been higher. Companies who employ workers don’t give a flying fig about your nationality. They want your talent now, from wherever you hail.

The Way In

US immigration policy has long accommodated this demand through a program called the H1-B, which pertains to skilled workers. The program permits 65,000 people with a college degree, and 20,000 with higher-level training, to work in the US for three years, during which time they can apply for green-card status. It is a harrowing life for those chosen, but it is better than being on the rejection list.

Each year more than a quarter of a million people from abroad file applications, some as thick as six inches. The chances of getting picked are good enough to keep hopes high but bad enough so that no one banks on getting in. And guess who picks the winners? It’s a lottery. A computer.

The whole system is ridiculously irrational, cruel, and self defeating, even if you believe in an America First immigration policy. Denying talented people jobs, infringing on the rights of businesses to hire whom they want, is an innovation killer. It causes the US to lose its competitive advantage, lowers economic growth, and denies all of us access to cool innovations that would otherwise make our lives better.

Even for the many critics of immigration, this program should pass muster. These people are not security risks. They aren’t going on welfare. They have the strongest possible incentive to acculturate, obey the law, and contribute mightily to American enterprise. What’s not to like?

The Way Out

So, yes, the program needs dramatic reform: it should be expanded many times over. However, the worst way to reform it is to restrict the program. In fact that seems unthinkable. And yet, we are learning with the Trump administration that nothing is unthinkable. Restricting the number of coders who have access to the H1-B program is exactly what the government is doing right now.

In recent days, immigration authorities announced a seemingly small change in what applications will be considered valid. No longer will coding be considered a “specialty occupation.” Further, the Justice Department announced that it will be conducting close investigations of tech companies that rely on the H1-B program for its coders. They are looking to make sure that companies are not denying Americans jobs in the search for quality candidates.

On the first point, this is a completely arbitrary administrative change, enacted without any Congressional vote or public comment. It’s the very embodiment of an independent bureaucracy run amok and acquiescing to political pressure from the regime in power. As for the investigations, here is a clear example of a hard truth: restrictions on immigration ultimately give more power to the state to oppress its own citizens.

What’s especially bizarre here is that this program has absolutely nothing to do with the nightmare scenarios of teeming masses of pillaging, raping terrorists pouring in across leaky borders that formed the basis of Trump’s anti-immigration rhetoric during the election. He did criticize the H1-B program in passing but most observers figured that he was once again out on his usual limb, speaking on issues about which he knew nothing.

What’s more, there is not even a job displacement issue here. If Google wants to hire a programmer from abroad, it can do so with the H1-B program or simply by contracting abroad (which is not currently restricted, thank the Lord). As an American citizen coder, with whom do you want to compete? A foreign resident making \$200K or a foreign worker paid \$100 an hour? The former represents a much higher cost to American business, so the arrangement gives the greatest possible advantage to existing citizens. (Special thank you to FEE president Lawrence Reed for making that point to me.)

In the first months of the Trump presidency, we’ve yet to see any action on health care or taxes, two issues that drove millions to the polls to vote for him. But on immigration, there’s been plenty of action. The bureaucracy is on overdrive, denying visas, keeping out qualified workers, instituting new forms of country exit controls, and even mandating forms of extreme vetting that could compromise your own communications with your friends in Europe and the UK.

On this topic, there seems to be absolute focus. But to what end? Success will only lead American business to be less competitive, less innovative, less able to forge a brilliant future for all of us. What is the goal here? Just to keep people out? How can anyone truly believe that this objective alone is a path toward greatness?

Even for critics of immigration policy, the H1-B program represents the right kind of immigration. It is about skills, invitation, and the right of business to employ the most talented people. Something has gone very wrong with an administration that seeks to dismantle something that should obviously be dramatically expanded.

Here’s a final issue that irks me. Government is demanding the most extreme forms of vetting, investigation, and compliance on the part of business, even as no one is more affected by labor choices than business itself. But as for itself, the government is completely satisfied with the most random system of all for selecting who gets in and who is kept out. Government has outsourced its job to a pair of dice.

Jeffrey Tucker is Director of Content for the Foundation for Economic Education. He is also Chief Liberty Officer and founder of Liberty.me, Distinguished Honorary Member of Mises Brazil, research fellow at the Acton Institute, policy adviser of the Heartland Institute, founder of the CryptoCurrency Conference, member of the editorial board of the Molinari Review, an advisor to the blockchain application builder Factom, and author of five books. He has written 150 introductions to books and many thousands of articles appearing in the scholarly and popular press.

Markets Are Breaking Down India’s Caste System, Turning Untouchables into Millionaires – Article by Malavika Nair and G. P. Manish

## Markets Are Breaking Down India’s Caste System, Turning Untouchables into Millionaires – Article by Malavika Nair and G. P. Manish

Malavika Nair and G. P. Manish
******************************

This year marks the 25th anniversary of liberal reforms in India that led to the dismantling of many socialist economic policies and the end of the draconian License Raj. Liberalization has changed life for many in India over the past couple of decades, although much more remains to be done. Just the middle class alone has exploded from 30 million people in 1991 to 300 million in 2014.

So this is a good occasion to tell the story of perhaps the most unexpected beneficiaries of these reforms: the rising Dalit millionaires. In recent years, many thousands of so-called “untouchables,” or Dalits, members of the lowest group in the Indian caste order, have risen out of poverty to become wealthy business owners, some even millionaires.

By taking advantage of the greater economic opportunity brought about by market reforms, these Dalit entrepreneurs provide us with an important example of the power of markets, not just to bring about economic emancipation, but to fight deeply entrenched social discrimination.

The Plight of the Dalits

The Indian caste system is an ancient and complex social order that divides society into groups based on a somewhat rough division of labor. The Dalits belong to the lowest group, below the four-tiered hierarchy of priests, warriors, merchants and artisans. Traditionally, Dalits were relegated to a life of doing “dirty” jobs such as cleaning floors and toilets or handling garbage: hence gaining the name “untouchable” as others would refuse to come into contact with them.

Since one’s caste was determined by birth, and it was impossible to switch castes throughout one’s life, being born an untouchable meant a lifetime of being trapped in a low income “dirty” job with very low social status. Marriages would only take place among caste members, and hence one’s children would be faced with the same hurdles brought by the untouchable identity, leading to systematic discrimination locked into place for generations.

It isn’t surprising that the Dalits consistently rank near the bottom of poverty statistics in an already poverty-ridden country. The term “poorest of the poor” would be an apt description of their socio-economic status in general. For decades, this made them the targets of several affirmative-action programs as well as many a politician looking to champion a cause.

While affirmative action has helped some get ahead, it has by no means been a panacea. For as long as all industry was state-controlled and subject to extensive licensing, the state effectively made all production decisions and awarded licenses to a few chosen oligarchs. This meant that opportunities for entrepreneurship and business were slim to none, and affirmative-action programs only served to redistribute pieces of a fixed pie from one to another.

Slumdog Millionaires

But there is a new heartwarming trend of entrepreneurship and self-help among Dalits since the liberal reforms in India, especially in urban areas. A visit to the Dalit Chamber of Commerce website (see also the Facebook page) reveals slogans such as “Fight Caste with Capital” and “Be Job givers, not Job seekers” as well as a spokesperson who favorably cites the invisible hand, a la Adam Smith! This voluntary Chamber of Commerce, set up in 2003 to bring Dalit entrepreneurs together, currently has 5,000 members whose enterprises jointly boast over half a billion dollars in sales revenue. The actual number of entrepreneurs in the population is much higher.

To what do they owe their success? Fascinating new qualitative research that tracks the life stories of several of these Dalit entrepreneurs reveals a common thread. The opening up of production processes to market forces created new opportunities like never before. Starting small and scraping together resources and capital, many of these Dalits now run business empires that actually provide employment to upper caste members.

There is Thomas Barnabas who was born into a family of bonded laborers, all eight of whom lived in a one-room house. Thomas recalls being thrown out of an upper caste friend’s home as a child after eating and drinking there because he was “untouchable.” They then proceeded to purify and wash the floor where he sat and threw away the dishes from which he ate.

Thomas now owns an industrial waste recycling and disposal business that has an annual sales revenue of \$2.3 million and employs 200 people (including many upper caste members) outside the city of Chennai. He strove to fulfill an unmet demand for the processing of industrial waste generated by large corporations like Samsung, Dell, and Mercedes that set up manufacturing facilities in India after liberalization.

Or there is M.M. Rao, who was just one of two children to get an education in a family of bonded laborers with eight children. His family was so poor that they could not afford to buy shoes. His mother and sister were forced to walk barefoot to work in a nearby town.

Rao now owns a group of companies that specialize in construction, especially in the telecom sector, with a sales revenue of \$7.4 million in 2010 alone. He was able to use his education as a civil engineer to start a small sub-contracting business laying telephone cables for large companies after the liberalization of the telecom sector. Owing to the quality of his work as well as his business acumen, he was able to grow that small sub-contracting business into what it is today.

Sushil Patil grew up in a 200-square-foot house in a slum, and his father was a laborer in a factory where he was discriminated against for his low caste status. Sushil was able to complete his engineering degree only because his father had to request the college dean to waive the fees that they could not afford to pay. He recalls, “I can never forget my father bowing before the dean, that hit me hard.” He now owns a construction and engineering company with revenues of \$45 million a year. His main business is to handle the construction of power plants for major power companies. He has friends who still live in the slum that he grew up in and hopes to construct a charitable hospital that will offer medical services free of charge to the poor.

Markets Break Down Barriers

These stories constitute but a tiny sliver of many thousands, if not more. They lead us to an interesting question: how is it exactly that markets fight social discrimination? Markets work in very different ways than the obvious and visible hand of state-driven policies. While the state seeks to outlaw and abolish caste identity by making discrimination illegal, markets work in quiet and invisible ways by making caste identity irrelevant.

Competition brings about the existence of meaningful and relevant alternatives that raise the opportunity cost of discrimination for everyone participating in the market. It is in an entrepreneur’s economic interest to hire and contract with those who have the highest marginal productivity regardless of their caste identity. For if he does not, his competitor might potentially steal away profits that he could have earned. The more open and competitive a market, the more true this holds.

Once liberal reforms were put in place, they created choice and opportunity for many like never before. Market forces unwittingly brought about economic and thus social progress for society’s poorest and most discriminated against.

But can we go as far as saying the caste system has withered away? Not at all. It is unfortunately alive and well, especially in the rural areas where 68% of the population still lives, despite its being legally “outlawed” for decades.

Can we say that discrimination melts away in a market setting? Not necessarily. Anyone is free to discriminate on the basis of caste identity, even in a market. However, the greater the economic opportunity out there, the greater the chance that the cost of discrimination will be borne by the discriminator himself, not the one being discriminated against.

This is not true under socialism. When the state has a monopoly over all production and its chosen oligarchs (employers) sell to a captive market, discriminating against a certain group of people does not have negative economic consequences for the employer, but only for the ones being discriminated against. Naysayers claim that this rise among Dalits is marginal and not representative of Dalits as a proportion to the total population of the country. Some are getting ahead, but most are still left behind.

While this may be true in terms of numbers, the fact that this has happened at all is nothing short of marvelous. It’s not a coincidence that there were no Dalit millionaires emerging under socialism. It is a direct consequence of the underlying institutional setting. The Dalits exemplify the theory of the so-called poverty trap: being locked into a low-income equilibrium for generations. And yet, given a little opportunity and choice, we see many leaving a life of poverty and social discrimination behind to become well-respected business leaders and philanthropists.

Most encouraging is the recognition among them that it is the invisible hand of the market that has been instrumental for social and economic progress in their community. It is a step in the right direction for the future of classical liberalism and its role in alleviating poverty at a time when many who are more fortunate seem to be forgetting or ignoring its importance.

References

1. The unexpected rise of Dalit millionaires: Swaminathan Aiyar
2. Capitalism is changing caste much faster than any human being: Shekhar Gupta
3. Defying the odds: The Rise of Dalit Entrepreneurs: Devesh Kapur, D Shyam Babu, Chandra Bhan Prasad
4. Capitalism’s Assault on the Indian caste system: Swaminathan Aiyar, Cato policy paper
5. 5. Dalit Chamber of Commerce website: www.dicci.org.

Malavika Nair is an Assistant Professor of Economics in the Johnson Center for Political Economy at Troy University. She is also an associated scholar of the Ludwig von Mises Institute.

G.P. Manish is an Assistant Professor of Economics in the Sorrell College of Business and a member of the Manuel H. Johnson Center of Political Economy at Troy University.

Our Media-Driven Epistemological Breakdown – Article by Bill Frezza

## Our Media-Driven Epistemological Breakdown – Article by Bill Frezza

Bill Frezza
******************************

How do we know what we know? Philosophers have pondered this question from time immemorial. Julian Jaynes, in his classic book, The Origin of Consciousness in the Breakdown of the Bicameral Mind, speculates that before the development of modern human consciousness, people believed they were informed by voices in their heads. Today, an alarming number of people are responding to voices on the Internet in similarly uncritical fashion.

As Jesuit scholar John Culkin pointed out in his seminal 1967 Saturday Review article, “A Schoolman’s Guide to Marshall McLuhan,” “We shape our tools and, thereafter, they shape us.” Examining history through this lens, one can identify seven great epochs in mankind’s intellectual and social evolution.  Each is characterized by the way a new technology changed not only how we think about the world, but our actual thought processes. These are:

1) Spoken language, which first led to the primacy of mythology;

2) Written language, which bequeathed to us holy books and the world’s great religions;

3) The printing press, which spread literacy to the elites who went on to birth the nation state, the Reformation, the Enlightenment, and the U.S. Constitution;

4) The telegraph, which transformed pamphlets and broadsheets into modern newspapers, whose agenda-setting influence goaded America to “Remember the Maine” and become an imperialist power;

5) Radio, which placed broadcast propaganda at the service of central planners, progressives, and tyrants;

6) Television, which propelled the rising tide of the counterculture, environmentalism, and globalism; and

7) The Internet, a nascent global memory machine that puts the Library of Alexandria to shame, yet fits in everyone’s pocket.

Reason’s primacy is a fragile thing.

At each transition, the older environment and way of thinking does not disappear. Rather, it adopts an extreme defensive crouch as it attempts to retain power over men’s minds. It is the transition from the Age of Television to the Age of the Internet that concerns us here, as it serves up an often-toxic brew of advocacy and click-bait journalism competing to feed the masses an avalanche of unverifiable information, often immune to factual or logical refutation.

Rational epistemology holds that reason is the chief test and source of knowledge, and that each of us is not just capable of practicing it, but is responsible for doing so. Reason flowered when the Enlightenment overturned the ancient wisdom of holy books, undermining the authority of clerics and the divine right of kings. Wherever reason is widely practiced and healthy skepticism is socially accepted, error becomes self-correcting (rather than self-amplifying, as under a system based on superstition), as new propositions are tested, while old propositions get reexamined as new facts come to light.

So now that the voices have returned to our heads, we are inadequately prepared to defend against them.

Yet, reason’s primacy is a fragile thing. As increasingly potent electronic media confer influence on new voices, formerly-dominant media and governing elites fight a rearguard action to regain their status as ultimate arbiters of knowledge and what matters. Goebbels proved that a lie repeated loudly and frequently in a culture that punished skepticism became accepted as truth. We all know how that turned out.

Revulsion at the carnage of the Second World War crested with the counterculture revolution driven by the first TV generation. By the time the dust settled, its thought leaders had grabbed control of the academy, reshaping it along postmodern lines that included an assault on language that critics dubbed political correctness. This was intentionally designed to constrain what people can think by restraining what they can say. The intention may have been to avert a repeat of the horrors of the 20th century, but the result was to strip much of the educated populace of the mental tools needed to ferret out error.

So now that the voices have returned to our heads, we are inadequately prepared to defend against them. Digitally streamed into every nook and cranny of our ubiquitously connected lives, these voices are filtered by our own self-reinforcing preferences and prejudices, becoming our own in the process. The result is an ongoing series of meme-driven culture wars where the shouting only gets louder on all sides.

So we come back to the question: How do we know what we know?

What causes crime? Is autism linked to vaccines? Should GMOs be banned? Is global warming “settled science”? These are more than factual questions. Responses to them signal identification with an array of ever more finely differentiated identity groups set at each other’s throats. For those who wish to divide and rule, that’s the whole point.

In a cruel irony, this global outbreak of media-induced public schizophrenia has even empowered jihadists bent on taking the world back to the 10th century using the idea-spreading tools of the Internet to challenge a Western Civilization rapidly losing its mojo.

So we come back to the question: How do we know what we know? At the present time, we don’t. And therein lies the problem.

##### Bill Frezza

Bill Frezza is a fellow at the Competitive Enterprise Institute and the host of RealClear Radio Hour.