It is a fundamental economic law that pricing the services of any product above its market clearing price will create a surplus for that product. It should therefore be a self-evident truth that this economic law applies to labour with equal force. Regardless of what a many people think, labour is not special nor is it bought and sold. What employers actually do is pay rent to labour for the use of its services. How much rent must be paid for those services depends on the supply of labour and the value of its marginal product. The lower the supply (given an unchanged demand) the higher will be the wage, and vice versa.
The demand curve for labour consists of a descending array of marginal productivities. The point at which the wage rate is determined is where we find marginal workers, those it only just pays to hire. It is at this point that minimum wage laws* do their damage. These workers are the first to go when the effective minimum is raised. It follows that what really matters is not the minimum wage per se but the effective minimum rate, the rate that exceeds the market clearing price of labour. Hence it is this rate that causes unemployment. Continue reading The minimum wage, Keynesian fallacies and leftwing malice
Some readers, still swayed by the current orthodoxy, are a little puzzled by the argument that government policies that bring about increased consumption come at the expense of economic growth (capital accumulation). The classical economists fully understood that economic growth was forgone consumption, meaning that investment, spending on capital goods, can only take place by directing resources away from consumption. It follows that the reverse must be true. Promoting consumption at the expense of savings results in resources being redirected from investment.
Unfortunately, policy-makers, not to mention a huge number of economists, genuinely believe that increasing the demand for consumer goods, by whatever means, will raise profits and thereby raise the demand for more capital goods which in turn would lead to an increased demand for labour. This Alice-in-Wonderland thinking (meaning the Keynesian multiplier) leads to the absurd conclusion that massively raising the spending power of the unemployed would generate enormous growth. Continue reading Why economic policies promoting consumer spending are bad for an economy
Alan Moran has been leading the Institute of Public Affairs charge against renewable energy policies. Now far be it from me to criticise Australia’s leading authority on the economics of renewable energy but, as was the case with Lord Cardigan and the Light Brigade, Dr Moran has mistakenly charged down the wrong valley.
His approach boils down to simply chanting that renewables are too costly, which is just another way of saying that they are less efficient than centralised power generation. It eludes him that the greens’ response is to argue that renewable energy will become more efficient if given enough time to develop. (I have been unable to find a response from any member of the rightwing to this assertion).
Every single member of our rightwing failed to grasp the simple and fundament fact that renewables just do not work. By this I mean that they cannot do the job that greens dishonestly claim for them. Expecting renewables to provide the vast amounts of energy required to drive an advanced economy is like expecting a Ford pickup to do the work of a 300 ton truck. It is a physical impossibility. The bald fact remains that so-called renewable energy faces insurmountable natural and economic obstacles. Yet this unalterable truth has never rated a mention from Alan Moran or anyone else at the Institute of Public Affairs. Continue reading Where the Institute of Public Affairs went wrong on renewable energy
Dealing with someone as relentlessly deceitful as John Humphreys is indeed a tiresome endeavour. Humphreys starts with the statement that “everybody knows, I wrote a paper that said that a carbon tax was ‘relatively better’ than an emissions trading system.” To begin with, an ETS is a carbon tax. This fact is not altered just because the price of carbon is exogenously set for an ETS. This is something that Samuel J at Catallaxy pointed out. If Humphreys disagrees, then I suggest he debate the matter at Catallaxy and not here.
That a self-professed economist could write a paper on a carbon tax versus an ETS and not realise that the latter is merely a more complicated version of the former should beggar belief. It certainly brings into the question the state of the author’s critical faculties. I always argued that no “matter how it is dressed up any emissions trading scheme (ETS) is in fact a carbon tax which in turn translates into a tax on economic growth and hence living standards.” Yet Humphreys set up a false choice and then declared that to disagree with him “is to say that you think an emissions trading system is better than a carbon tax.”
Continue reading The carbon tax and the deceit of one of its advocates