Do as I say, not as I do

Some wise words from the Chinese president:

"We must respect the right of each country in the world to independently choose its path of development and oppose interference in the internal affairs of other countries," Xi told students at an international relations school.

If only Xi felt the same way toward his own citizens.  If he did, he’d say this:

"We must respect the right of each country citizen in the world China to independently choose its his path of development and oppose interference in the internal affairs of other countries citizens," Xi told students at an international relations school.

What’s in an Average?

Someone once said about data: “there are lies, damned lies, and statistics.”  This truism reflects the fact that information gleaned from data can often be maligned.  Here’s a good example.

The Mercatus Center at GMU produced the Freedom Index of the fifty states.  The fine folks at George Mason took a plethora of statistics regarding personal and economic freedom from each of the states and reduced it to a single Freedom Index score.  Part of that data set contained information regarding right to work (RTW) laws.  I wanted to see if there was correlation between RTW laws and statewide employment.  My intuition told me that, in general, unemployment should be lower in states with right to work laws.  Forced unionism can be an impediment to employment, or so I thought.

I went to the Bureau of Labor Statistics and obtained unemployment figures for each state.  I used the most recent data – January 2013.  This is a snapshot of a point in time and a better indicator might have been a two or three year average.  But to keep it simple, I used the January data.

First, I ran a simple average for RTW states and the unemployment rate. If my intuition were correct, I should find lower UE in RTW states.  Here’s what I found:

                Unemployment rate for RTW states – 6.78%

                Unemployment rate for non RTW states – 7.3%

Unemployment is over 7% lower in RTW states.  Case closed, right?  If I worked for the MSM, I could conclusively report that states with RTW laws have lower unemployment figures than non RTW states.  Therefore, RTW laws increase employment.  Not so fast.  While the average UE rate in RTW states is indeed lower, is this relationship strong?  Let’s see.

Using unemployment as the dependent variable and RTW law as the independent variable, I used regression analysis to see how RTW might influence employment.  My R-square value was a mere .027 and the P-value was not significant at 0.253.  What does all this mean?  While the average unemployment rate is lower in RTW states, only 2.7% of the variation can be explained by RTW laws.  Other factors are at play here and RTW alone isn’t sufficient to explain why RTW states enjoy lower unemployment.

Moral of the story: beware of misleading statistics. We are constantly bombarded with averages, percentiles, and other data regarding a whole host of economic data.  Many times, these statistics are meant to influence our thinking towards public policy.  So, before you hop on board your favorite statistic, look more deeply into the numbers.  You might be surprised at what you find.

Some Clarity, Please

Mr. President, I’m a little confused.   

You say that reducing the flow of federal dollars into the economy will inflict harm.  Thus, the sequester is bad policy.  In its stead, you advocate for tax increases – a policy that would reduce the flow of private dollars into the economy.  However, you remain agnostic about the economic effects of this seemingly identical policy.

What is the difference?

More Stimulus Waste

Remember the 2009 stimulus package?  It was sold as $800 billion of shovel ready jobs, guaranteed to keep unemployment below 8%, and fast-track the American economy.  We all know how that worked out.  Here’s a little more evidence that no one wastes money like Uncle Sam.

West Virginia state auditors found widespread waste and abuse of taxpayer money as government officials were implementing the Broadband Technology Opportunities Program (BTOP).  This revelation isn’t new, but W. Virginia’s recent report sheds new light on how well-intentioned programs go very wrong. 

 In short, West Virginia officials were buying $20,000 routers to interconnect libraries, community centers, and other public offices using federal grant money.  One library in particular was the size of a small shed, yet boasted a $20,000 Cisco router.  There’s plenty of blame to go around, but the moral of the story is this: government should stop spending other’s people money.

Read the whole story here.

A Little History on the Min Wage

President Obama’s minimum wage hike proposal delivered in the State of the Union address has prompted much chatter in the blogosphere on the subject.  If you’re a Café Hayek patron, your min wage cup runneth over, and over, and over..

 

I did a little research on the matter, and learned that min wage laws were not always allowed.  In 1905, the US Supreme Court ruled, in Lochner v. New York, that the NY legislature went too far in restricting the vocation of bakers.  The law attempted to put a ceiling on the number of hours and days a person could work as a baker.  (According to some, this law was to protect American bakers from immigrant competition, who would work harder and longer than their American counterparts.)  The law was upheld through lower court rulings but was eventually overturned (5-4) in a landmark decision.  Justice Rufus Wheeler, speaking for the court said that, “[the] Fourteenth Amendment protected an individual's "general right to make a contract in relation to his business.”  Seems like common sense to me.  This ruling began what was known as the Lochner Era, a prolonged period where the high court struck down many regulations aimed at restricting personal liberty.

Then, in 1923, the Court struck down a federal 1918 law that set minimum wages for women and children in the District of Columbia.  The Court said that if the legislature could set a min wage, nothing would prevent it from setting a max wage, and apparently that notion did not sit well with the Justices.  (I touched on this topic here.)  They ruled 5-4 that this minimum wage law was unconstitutional, based on similar grounds found in the Lochner case.  However, this reprieve from the min wage wouldn’t last long.

After fourteen years, a new case was brought before the Court that would reinstate the min wage.  In West Coast Hotel Co. v. Parrish, the Court ruled that legislatures could indeed restrict the activities of individuals where the health and welfare of the community was involved.  (And when isn’t the health and welfare of the community not involved??)  This case effectively ended the Locher Era, as the New Deal Era drastically shifted the direction of the Court.

Bring back the Lochner Era I say!