Browsing Tag: spending

    Is Raising Minimum Wage A Bad Idea?
    Articles, Blog

    Is Raising Minimum Wage A Bad Idea?

    August 22, 2019


    There’s a movement in cities across the
    country to raise the minimum wage to $15 per hour. One of the most prominent advocates
    is former labor secretary Robert Reich who thinks that $15 per
    hour should be the minimum wage for the entire country, this is a bad idea. Here are three reasons why,
    first of all, it would kill jobs. One of the basic lessons of economics is
    that when the price of something goes up, people buy less of it, so, if the price of pumpkin lattes rises you
    can expect consumers to buy fewer of them. This law of demand also
    effects the market for low-skilled workers,
    raising the minimum wage means a higher cost of employing each worker which makes
    workers less affordable than before. Our coffee shop won’t keep a worker at
    a mandated $15 per hour if that worker’s efforts only result in $7.25
    per hour in added revenue. Over the course of the year, a shop
    that keeps such a worker full-time would lose $15,500, so instead,
    it would eliminate that job and evidence shows that employers in fact do
    respond in this way to minimum wage hikes. Recent research by economists
    Jeffrey Clemens and Michael Wither finds that 1.4 million jobs
    were destroyed in the late 2000s when the minimum wage rose across all 50 states
    by an average of nearly 30%, and worse, those job losses were probably suffered
    by the people who need jobs the most. This fact brings us to reason number 2, the minimum wage actually hurts
    the people we most want to help. When the minimum wage rises, the workers
    fired first and the ones hired last are those who employers judge to be
    the least productive, the inner city teen from the lousy school district or
    the immigrant with poor English will be fired before the suburban American
    teen from the excellent school district. So those who are most disadvantaged, tend to suffer the most job losses, this
    reality is compounded by the fact that raising the minimum wage causes
    more competition for jobs. A supermarket job that once paid $8 per
    hour draws more applicants when it pays $15 per hour, applicants who include
    retirees, and people with higher education who reenter the workforce only
    because of the higher wage. Because these people often have more
    skills, they squeeze out immigrants and those from disadvantaged backgrounds who
    are likely more desperate for the jobs, and certainly more desperate
    to gain job experience. The third reason is that minimum
    wage hikes aren’t necessary to give deserving workers raises. 96% of American workers today earn wages
    higher than the current minimum wage, which proves that employers don’t just
    pay the minimum that they’re obliged to pay by law. Employers respond to the value
    that each employee adds, so they can retain the best talent. It’s expensive to train new employees and businesses don’t wanna lose good
    workers to their competitors, so they raise worker pay voluntarily as
    employees gain more skills and experience. But when government imposes such
    raises by hiking the minimum wage, some of the least experienced workers
    will not only lose their current jobs, they’ll find it incredibly
    hard to find other jobs. In essence, the minimum wage cuts off
    the first rung on the employment ladder. And it’s that first, lowest paying rung,
    that provides the skills and experience workers need to
    reach the next rung, and to continue climbing their
    way to a better life.

    Why Is China Investing Billions in Africa? | NowThis World
    Articles, Blog

    Why Is China Investing Billions in Africa? | NowThis World

    August 22, 2019


    China has invested billions of dollars into the continent of Africa to build massive infrastructure projects. Much of this infrastructure is part of China’s Belt and Road Initiative, an estimated 1 trillion dollar plan to connect the country to trade routes all over the world. African leaders like Kenya’s Uhuru Kenyatta have favorably compared China’s investments to earlier projects built by colonial powers. While the old railway was built by force and violence against the wishes of those whose land it divided, the new railway is built by consent and partnership both between ourselves and China and between the governments which will prosper and profit by it. But is China’s investment in the continent actually a “win-win” as some African and Chinese leaders have said? Or just a new form of colonialism on a continent that’s experienced so much of it? In this episode, we’re examining China’s Belt and Road Initiative and what it might mean for Africa. While China’s Belt and Road Initiative was only proposed in 2013, the country’s first infrastructure project on the African continent was built decades ago. The Tazara railway, completed in 1976, was built to connect copper mines in Zambia to Dar Es Salaam, Tanzania’s former capital. The Tazara railway was the first infrastructure project built on a pan-African scale. China’s Belt and Road projects will be designed with this scale in mind, creating new trade routes within and between African countries. In 2017, a Chinese firm opened a railway network in Kenya, connecting its capital Nairobi to the port city of Mombasa. There are already plans to extend this network into South Sudan, Uganda, Rwanda and Burundi. China, through its public and private sectors, has already loaned about $132 billion to African countries from 2006 to 2017. Many observers worry that African countries won’t be able to pay back these debts, placing them in what’s been called a quote “debt trap.” The Jubilee Debt Campaign, which campaigns for poor countries’ debts to be canceled, estimates that about 20% of debt held by African governments is owed to China, making it the single largest lending nation. For comparison, 35% of African debt is owed to multilateral, global institutions like the World Bank. Earlier waves of Chinese firms that invested in Africa made mistakes that caused problems for those countries’ governments. Starting in 2005, tens of thousands of workers from China poured into the west African country of Ghana to take advantage of a gold rush. This eventually provoked a local backlash due to accusations of illegal mining, inflaming tensions between Chinese miners and the local government. Many observers have pointed to projects like this as examples of China exploiting Africa for its natural resources through quote “neo-colonialist behavior.” However, other observers contend that the majority of investment from China has largely avoided creating the problems seen in Ghana’s gold mines, precisely because resource extraction has not been the main focus of other investments. In fact, the number one industry for Chinese investment has been the service industry, according to IMF economist Wenjie Cheng. She also points out that the countries where China’s investment has been largest include those without abundant natural resources, such as Ethiopia and Kenya, in addition to resource-rich countries like Nigeria. Ultimately, African governments may feel that the risk of accumulating debt is outweighed by the benefits of new infrastructure. The China Africa Research Initiative found that roughly 40% of China’s loans between 2000 and 2015 went towards paying for energy projects and another 30% went toward modernizing transportation on the continent. These loans were set at relatively low interest rates and with longer periods of time to pay them back. The Center for Global Development crunched the numbers on debt to China as a result of the Belt and Road Initiative, and found that eight of the 71 countries involved in the project were particularly vulnerable to getting caught in a debt trap. Of these eight countries, only one was in Africa: Djibouti, a port country that’s also become a military strategic point for China. The other seven countries are in Europe and Asia. Nevertheless, China has denied engaging in “debt trap” diplomacy. In an attempt at thisto strengthen this collaboration, China has also promised to align its goals for the Belt and Road Initiative with the African Union’s own development goals of greater interconnectivity on the continent. However, these promises have yet to be outlined. Ultimately, China’s push in Africa may be seeking to increase the country’s influence, rather than reap financial gains. Its investments are already strengthening China’s alliances with African governments, to China’s benefit. Every African country but eSwatini, formerly known as Swaziland, has cut ties with Taiwan, a prerequisite for diplomatic relations with mainland China. Some observers think that as African countries rise economically, they could actually have the upper hand by the time they negotiate payments back to China. This explains why African leaders have been so confident in calling Chinese investment a “win-win,” but only time will tell if their long game pans out. So do you think China’s investments in Africa will be a boon to the continent, or are they a form of neocolonialism? Let us know in the comments below. Thanks for watching NowThis World, don’t forget to like and subscribe.

    What If There Were No Prices? The Railroad Thought Experiment
    Articles, Blog

    What If There Were No Prices? The Railroad Thought Experiment

    August 11, 2019


    To appreciate why market prices are essential to human well-being, consider what a fix we
    would be in without them. Suppose you were the commissar of
    railroads in the old Soviet Union. Markets and prices have been banished. You and your comrades. Passionate communists all. Now, directly plan how to
    use available resources. You want a railroad from city A to city B,
    but between the cities is a mountain range. Suppose somehow you know that
    the railroad once built. Will serve the nation equally well. Whether it goes through the mountains or
    around. If you build through the mountains,
    you’ll use much less steel for the tracks. Because that route is shorter. But you’ll use a great deal of
    engineering to design the trestles and tunnels needed to cross the rough terrain. That matters because engineering is also
    needed to design irrigation systems, mines, harbor installations and
    other structures. And you don’t want to tie up
    engineering on your railroad if it would be more valuable designing
    those other structures instead. You can save engineering for
    other projects. If you build around
    the mountains on level ground. But that way you’ll use much more steel
    rail to go the longer distance and steel is also needed for other purposes. For vehicles, girders, ships, pots and
    pans and thousands of other things. Which route should you choose for
    the good of the nation? To answer, you would need to
    determine which bundle of resources is less urgently needed for
    other purposes. The large amount of engineering and
    small amount of steel for the route through the mountains,
    where the small amount of engineering and large amount of steel for
    the roundabout route. But how could you find out the urgency
    of need for engineering and steel in other uses? Just one way engineering is used
    is to build irrigation systems. To assess the importance of a particular
    irrigation system, you would need to know what the farmers know about how irrigation
    would increase the yield of their fields. And to know the value of that increased
    yield, you’d need to know what grocers know about their customers eagerness for
    that produce. That in turn depends on what customers
    know about the better meals they could fix with that produce. How would you find all this out? Just one way to use steel
    is to build new trucks. To assess the importance of a particular
    new truck, you would need to know what the trucker knows about the capacity
    of his current truck, and how much more quickly he could make the deliveries his
    customers want with a new bigger truck. To know the importance of those
    deliveries, you would need to know what his customers know about the value
    of getting goods delivered. That in turn depends on what still others
    know about the uses of those goods at their destinations. To reason about where
    to route the railroad, you need this kind of information for all
    possible uses of engineering and steel. That’s a massive amount of knowledge, held
    by millions of people throughout society. How might you get it? You might try surveys, but think how
    many people you would need to survey. All those who prepare meals with produce,
    and all those who take delivery by truck for
    starters. The numbers would be staggering. And often people don’t even know what they
    prefer until they face an actual choice. So they might not be able to answer
    survey questions accurately. Even if they could,
    by the time the surveys were returned and processed, much of the information
    would be out of date. And even if you could get complete and
    timely information about what everyone knows, that’s relevant
    to every use of steel in engineering, you would still need to deduce from
    it where to build the railroad. How would you begin to make
    sense of that mountain of data? In the words of Ludwig von Mises,
    you would be groping in the dark. You would face what is known as
    the knowledge problem of central planning. The reason why comprehensive
    socialism inevitably fails. Central planners cannot get the knowledge
    they need in order to plan effectively. You, commissar, simply cannot know on what
    projects scarce resources should be used for the good of the nation. But now change the thought experiment. Imagine that somewhere in the market
    economy part of the world, you are the chief operating
    officer of a railroad company. You work not for the good of the nation,
    but to generate profits for your firm. You want to run a railroad
    line from city C to city D. Again, there’s a mountain
    range between them. Now, how do you decide on the route? You choose what’s cheapest. You would calculate the total
    cost of each route for each one, multiplying the amount of engineering
    required by the price of engineering, and adding that to the amount of steel
    required times the price of steel. Then, you would choose whichever
    cost your company less. You might give no thought at all to the
    good of the nation or society as a whole. But, and here’s the marvel,
    by choosing the route that is cheapest for your company you would thereby choose
    the route that’s best for society. You would use the bundle of resources
    that’s least urgently needed for other purposes. Why? Because those market prices you calculate
    with reflects the urgency of need for engineering and
    steel in all their alternative uses. For example, suppose customers wanting
    to taste your meals, would buy better, more expensive produce, if it were
    on the shelf of their local grocery. In effect,
    they’re offering grocers more for produce. So the grocers will offer farmers more for
    produce. So the farmers who feels would be
    sufficiently improved by irrigation will offer more for irrigation systems. And those who build irrigation systems
    will offer engineers more to design them. Now that designing irrigation
    systems pays engineers better, people who want to hire engineers for
    other projects, such as railroads, will have to offer them at least as
    much to make it worth their while. The higher price tells everyone who
    uses engineering that it’s become, for some reason, more valuable so
    maybe they should use less. In this way, the market prices of
    resources represent the particular knowledge and preferences of
    millions of people who directly or indirectly use those resources. And the prices communicate
    that knowledge and those preferences to everyone interested. Only with market prices to communicate
    this vast amount of human knowledge to us. Can we calculate the least costly
    ways of producing the things we want, coordinator activities with the activities
    of others, use resources where society values the most, and thereby satisfy
    as many human wants as possible?