From the Department of Economic Literacy or lack thereof

I was browsing through the news this morning and I came across this lovely item in the Politico by Roger Simon.

THE POINT: Clinton is promising “a national response” to “the crisis of the more than 4 million young people between 16 to 24 who are out of school and out of work.” Barack Obama has announced an “urban poverty” agenda that covers some of the same ground.

The programs are interesting because they show how the conversation in Washington would change with a Democratic president. Some Clinton details from a campaign précis: “She will … launch a $100 million Public/Private Internship Initiative to give at-risk middle- and high-school students job skills and work experience during the summer. … In addition, she will offer 1.5 million disconnected youth a second chance with meaningful job training in growing industries in their own communities, including renewable energy, health care, construction and financial services.”

Thats the meat of it... and the illiteracy part comes in here. Senator Clinton and Senator Obama, who has a similar program both voted for the minimum wage increase. There are numerous studies that talk about the effect (negative) on teen employment prospects because of a minimum wage increase. This one here is my favorite. The totally ironic thing as the study points out, the very people that Senator Clinton hopes to help through her new government program, are the very SAME people the minimum wage bill that she so proudly voted for has hurt the most. The most logical thing would be to remove the distortion and get rid of the minimum wage, but thats not how politicians think. One government mistake, needs another government program to fix it... only in Washington.

A better idea, save $99,999,000 and send all of the senate to Professor Mankiw's ever so popular economics class. :)

Article of the Day

This article by Arnold Kling on TCS Daily is a must-read today if you are at all interested in the health care debate.

Misunderstanding Economists

The latest article in Foreign Policy, entitled "5 Lies My Economist Told Me," is a classic example of a red herring argument. It posits a list of arguments that "Economists" would make. All I can do is laugh. This post does as good a take down of FP as I could. H/T Tyler Cowen.

The Minimum Wage

I know I am few days late and the Federal Minimum Wage jumped up, but I recently came across this article on the minimum wage at the Federal Reserve Bank of Cleveland's website. Their conclusion should be familiar to anyone who has taken Econ 1A, when you increase the price of a good (Or in this case labor), you will consequently lower the demand. More in depth studies I have read, posit that the welfare gains to the lottery winners (those who keep their jobs) are more than offset by the welfare losses to those who gain into unemployment. Another argument is that by reducing the number of low wage (and hence low skill) jobs we are also making it more difficult for the unskilled to gain entry into the work force. Also, whenever you raise the price of something above its market clearing price you create incentives to form a black market. The cigarette market is a perfect example. Before the anti-smoking forces managed to jack up prices, there was very little black market activity in cigarettes. In places like New York City, there is a huge black market thanks to the Indians which do not have to pay the city tax. Regulation in interfering with the price mechanism has a multitude of unintended consequences, and the minimum wage bill, while making for good political theater, will ultimately end up hurting the people it is intended to help.