Category Archives: Economics

Seattle Min Wage Hikes Crushing The Poor: 6,700 Jobs Lost, Annual Wages Down $1,500 – UofW Study, by Tyler Durden

If you increase the price of a good or service, including labor, you reduce the demand. From Tyler Durden at

Just last week we noted that McDonalds launched plans to replace 2,500 human cashiers with digital kiosks like the ones below (see: McDonalds Is Replacing 2,500 Human Cashiers With Digital Kiosks: Here Is Its Math):

Of course, no matter how much anecdotal and/or hard evidence is presented to liberals on the negative consequences on higher minimum wages they simply can’t be convinced it’s a bad idea.  Somehow, the basic economic concept that raising the price of good (i.e. wages) would somehow destroy demand (i.e. employment levels) for that good just does not compute in the minds of progressives.

Never the less, below is yet another study from economists at the University of Washington that reveals some fairly startling takeaways about Seattle’s minimum wage.  Per the chart below, minimum wages in Seattle increased from $11 in 2015 to $13 in 2016 and $15 in 2017 for large employers.

To our total shock, the study found that higher minimum wages caused a 9.4% reduction to total hours worked by low-skilled workers, or roughly 14 million hours per year.  Given that a full-time employee works 2,080 hours per year, that’s equivalent to just over 6,700 full-time equivalents who have lost their jobs, just in the city of Seattle, courtesy of moronic politicians who don’t seem to grasp basic mathematical concepts.

Our preferred estimates suggest that the Seattle Minimum Wage Ordinance caused hours worked by low-skilled workers (i.e., those earning under $19 per hour) to fall by 9.4% during the three quarters when the minimum wage was $13 per hour, resulting in a loss of 3.5 million hours worked per calendar quarter. Alternative estimates show the number of low-wage jobs declined by 6.8%, which represents a loss of more than 5,000 jobs. These estimates are robust to cutoffs other than $19.45  A 3.1% increase in wages in jobs that paid less than $19 coupled with a 9.4% loss in hours yields a labor demand elasticity of roughly -3.0, and this large elasticity estimate is robust to other cutoffs.

A Jubilee is Coming, by Robert Gore

The greatest debt expansion in history draws to a close.

Conventionally measured economic growth is related to two aspects of debt: its growth rate and its marginal effectiveness. In terms of economic growth, debt should be thought of as a factor affecting production, like the supply and cost of labor, capital goods, and land. A business can increase the supply of whatever goods or services it produces by borrowing money. Whether it does so depends on the cost of debt service versus the expected return from the expansion. As long as the latter is greater than the former, the business should add debt and expand. This analysis applies to an economy as a whole: debt should increase as long as the return from debt is greater than its cost.

The more debt an entity incurs, the less productive each additional unit of debt becomes—diminishing marginal returns. For the global economy, the point has been reached where the benefit of an additional unit of debt is less than its cost. That point was probably reached years ago, but debt-funded consumption, and governments and central banks machinations, have obscured this reality. In GDP accounting, an increase in consumption is treated as an increase in GDP, regardless of where the money came from to pay for it. Increasing debt to fund consumption increases GDP. However, such debt, because it does not fund investment, does not increase production. There is no economic return to offset its costs; it’s economically counterproductive.

For at least the last seventy years, debt in the US has grown faster than GDP. The same is true for most of the developed world, including, since the turn of the century, China. The increasing absolute level of debt relative to GDP has only been partially offset by generally falling interest rates. The debt service burden has increased, debt is increasingly funding consumption, and that which is funding production has run into minimal or negative returns.





If this were happening in a strictly market economy, debt would be reduced, either paid off, rescheduled, or repudiated and written off. However, government and central bank fiat debt—debt that can be incurred in unlimited quantities by governments and central banks—stifles these adjustments. The central bank can use its fiat debt to purchase the government’s fiat debt (debt monetization) and in so doing set the price, or interest rate, for the government debt, influencing the configuration of interest rates throughout the economy.

Some who despair at these machinations conclude that there are no longer any adjustment mechanisms and that the machinations can continue in perpetuity, the tree of some asset prices (equities and real estate) growing to the sky. Perhaps they are right; the global expansion of central bank balance sheets since the last financial crisis is unprecedented; it’s at least a theoretical possibility that it will never end. However, this game of central banks conjuring fiat debt and monetizing governments’ debt (and other financial assets) doesn’t operate in a vacuum, rather it has promoted debt growth in the overall economy. There, signs that the marginal return on debt is now negative, that the burden of debt service outweighs the benefits of debt, are abundant, and debt contraction will happen regardless of the desires of central bankers and government officials. There are only so many private income streams that can pay debt service, only so many private assets that can be collateralized.

Global debt stands at a record 325 percent of global GDP. That number includes government and private debt, but not unfunded pension and medical liabilities. Their inclusion would significantly raise that percentage. As a greater proportion of income is devoted to debt service, a smaller proportion is left for saving and investment, which funds future growth, and consumption.

The long downtrend in global growth confirms the increasing toll of interest and principle repayment. In the most heavily indebted nations—Japan, Greece, Italy, Spain, Portugal, Puerto Rico, Brazil—GDP has been in multiyear contractions. In much of the rest of the developed world’s welfare states—the US and Western Europe—growth has been in long-term decline, and suspect price index calculations and seasonal adjustments cast doubt as to whether those economies are growing at all. In the US, annual growth never reached 3 percent during President Obama’s tenure, a first for a US president. Debt-fueled economic growth in China is slowing, probably more than suspect Chinese statistics are allowed to show.

US household debt has surpassed its 2008 peak and corporate and US government debt are at all time highs. Puerto Rico and Detroit have sought relief from creditors and Illinois and Chicago will soon join them. The municipal insolvency parade is just starting. Mounting unfunded pension liabilities are swallowing an ever-increasing share of municipal budgets.

Banco Popular in Spain was sold earlier this month for one euro after it exhausted its credit lines in a vain effort to contain depositor withdrawals. Equity and bond owners bore the brunt of the bank’s losses. Last Friday, two banks in Italy were shut down by the European Central Bank after repeated rescue attempts failed. More Italian banks will fall; their entire system is essentially insolvent and the economy hasn’t grown in years. Europe is holding its breath hoping that Italy’s depositors don’t panic, but they will

The last financial crisis started in the housing, mortgage, and mortgage-backed security sector, but was not, contrary to numerous official assurances, “contained” there. A debtor’s debt is a creditor’s asset. When the credit creation process reverses and a debtor’s debt is either rescheduled or repudiated, its creditor’s assets are impaired. That can impair the creditor’s ability to pay its own debt and curtail its extension of new debt. The 2008 crisis demonstrated how this chain reaction quickly spreads beyond the sector in which it began. Now there are multiple sectors that are as inflated as housing was back then and some are already unraveling.

According to Citibank, the growth in total global credit has just gone negative after eight years of the greatest expansion of government debt and central bank balance sheet expansion the world has ever seen. Their fiat debt can expand without limit, but not so the debt of individuals, businesses, and smaller governments bound by legal restrictions on debt issuance and without recourse to central bank monetization. Declining long-term growth trends and outright contraction, increasing outbreaks of fiscal stress around the globe, huge and growing unfunded pension and medical fund liabilities and aging populations that will draw on them are all indications that debt expansion by every class of entities but central banks and governments has hit a wall and is reversing.

There are proposals for central banks to simply hand out their fiat debt to everyone—helicopter money—and for partial or complete debt jubilees—legally mandated debt forgiveness. Helicopter money would be hyperinflation, which would devalue all debt and amount to a partial jubilee. One shouldn’t underestimate the political potency of such proposals. There are always more debtors than creditors and governments themselves are the biggest debtors. In the US there have been calls for student loan forgiveness, which are, not surprisingly, popular with millennials.

Whether or not governments enforce debt forgiveness, a de facto jubilee is coming. The world has far more debts and pension and medical liabilities than it can support and they will not be repaid, regardless of how much fiat debt governments and central banks crank out. There has never been a worse time to be a creditor: maximum risk, minimum yield. That serial defaulter Argentina was able to issue 100-year bonds at 8 percent interest is emblematic of the credit market’s thirst for yield and disregard of risk. The next ten years will a lender’s nightmare.


TGP_photo 2 FB




Why The Next Recession Will Morph into a Decades Long Depressionary Event…Or Worse, by Chris Hamilton

One critical, but often overlooked, factor in macroeconomic analysis is population trends. From Chris Hamilton at

Economists spend inordinate time gauging the business cycle that they believe drives the US economy.  However, the real engine running in the background (and nearly entirely forgotten) is the population cycle.  The positive population cycle is such a long running macro trend thousands of years in the offing that it’s taken for granted.  It is wrongly assumed that upon every business cycle downturn, accommodative monetary and fiscal policies will ultimately spur greater demand and restart the business cycle once the excess capacity and inventories are drawn down.  However, I contend that the population cycle has been the primary factor in ending each recession…and this most macro of cycles is now rolling over.  Without this, America (nor the world) will truly emerge from the next recession…instead it will morph into an unending downward cycle of partial recoveries…contrary to all contemporary human experience.

The evidence for my contention begins with the 25-54yr/old US population, which peaked in December 2007 and remains below that peak ever since (this population is presently about 400k fewer than Dec of ’07).  However, total US full time employment is now 3.6 million above the previous peak in 2007.  This 25-54 to FT employment relationship is now 1:1…just as it was in 1980 and 1970.

Annual change in 25-54yr/old US population vs. annual change in total full time US employees (below).  The macro population cycle provided millions of new adults (consumers) and their increased demand restarted the more frequent gyrations of the micro business cycles…until 2008 and again now in 2017.  Some may take note that the Federal Reserve cost of money (the Federal Funds Rate in blue) generally followed the population cycle, only making some deviations for the business cycle along the way.

Why Do Half-Measures Work for Markets, But Not for Socialism? by Ryan McMaken

The proponents of socialism proclaim that you need the whole loaf or socialism will fail. Proponents of capitalism don’t have to make such claims. Usually just moving in that direction leads to improvement in economic well-being. With a hat tip to SLL reader ikdr, from Ryan McMaken at

Socialists have attempted many times to put their ideology into action. Socialism has been applied in the Soviet Union, Cuba, China (before Deng), North Korea, and by many other less-famous regimes.

In each case, the result has been economic impoverishment and political authoritarianism.

But the die-hard socialists refuse to give up. “Don’t judge communism based on these results, ” we’re told. “Socialism has simply never really been tried.”

Socialism Doesn’t Work Unless It’s Pure Socialism

Indeed, in a recent back-and-forth between John Stossel and Noam Chomsky, Chomsky denied that the Venezuelan regime is socialist at all:

I never described Chavez’s state capitalist government as ‘socialist’ or even hinted at such an absurdity. It was quite remote from socialism. Private capitalism remained … Capitalists were free to undermine the economy in all sorts of ways, like massive export of capital.

The thinking goes that socialism cannot work unless it progresses all the way to “full socialism.” No partial effort will suffice, we are told, and socialism keeps failing because the some elements of “private capitalism” remained. 

So long as any aspect of a state is not full-on socialism, the thinking goes, then the regime is not really socialist. Moreover, the failure of the regime’s socialist policies — such as expropriation of private companies and expansion of government-owned industries — are to be blamed on capitalism, not socialism. 

RELATED: “Why the Left Refuses to Talk About Venezuela” by Ryan McMaken

Naturally, were socialism able to achieve it’s final state — and all elements of capitalism expunged — we’d know it by its ushering in of a society marked by unparalleled prosperity and total equality.

Nevermind that for all intents and purposes, Lenin did achieve nearly complete and total nationalization of the economy during the Russian Civil War in 1922. The people began to starve soon after, and Lenin retreated to the partial socialism under his so-called “New Economic Policy.”

To continue reading: Why Do Half-Measures Work for Markets, But Not for Socialism?

Withdrawing From Paris Accord Helps America’s Most Vulnerable, by Blaine Conzatti

If the economy is impaired by regulations and taxes, it’s axiomatic that those on the economy’s bottom rungs will bear some of the costs, a fact rarely acknowledged by those pushing for regulations and taxes. In fact, they often perpetuate the canard that regulations and taxes somehow help the poor. From Blaine Conzatti at

Are you concerned about the poor’s economic welfare? If so, you should celebrate President Trump’s announcement that the United States will withdraw itself from the Paris Agreement.

The Paris climate accord, which was ratified last year, attempts to “brings all nations into a common cause to undertake ambitious efforts to combat climate change and adapt to its effects.” Supporters of the agreement claim it is necessary to avert the disastrous consequences of climate change.

Regrettably, the plan’s supporters are committing the greatest economic fallacy, which Henry Hazlitt, the acclaimed economics writer, warned about in his most prominent work, Economics in One Lesson(1946):

The bad economist sees only what immediately strikes the eye; the good economist also looks beyond. The bad economist sees only the direct consequences of the proposed course; the good economist looks also at the longer and indirect consequences.

While laypeople, pundits, scientists, and economists have focused their attention on what Trump’s decision might mean for climate change, these groups have largely ignored the effect of the agreement on poorer American households. Here are three reasons why withdrawing from the Paris Agreement is good for the poor:

The Paris Agreement raises energy costs for hardworking American households.

Under the agreement, the United States pledged to reduce its greenhouse gas emissions by 26-28% below its 2005 level by 2025. This would be accomplished by transitioning from fossil fuels to renewable sources of energy.

Although renewable energy will likely become the technology of the future, prematurely transitioning to “greener” sources creates a problem for Americans struggling to make ends meet.

Right now, these alternative sources of energy are far more expensive (and less reliable) than traditional sources. A study published last year found that “electricity from new wind and solar power is 2.5 to 5 times more expensive than electricity from existing coal and nuclear power.”

To continue reading: Withdrawing From Paris Accord Helps America’s Most Vulnerable

More Solar Jobs Is a Curse, Not a Blessing, by Paul Dreissen

By the logic of cheerleaders for solar jobs, it would be a great thing if 100,000 dug a hole, and a tragedy if 100 engineers design and produce a high-end microchip. When studying jobs, the benchmark is what gets produced by how many people, or productivity, not how many people are employed. From Paul Dreissen at

Citing U.S. Department of Energy data, the New York Times recently reported that the solar industry employs far more Americans than wind or coal: 374,000 in solar versus 100,000 in wind and 160,000 in coal mining and coal-fired power generation. Only the natural gas sector employs more people: 398,000 workers in gas production, electricity generation, home heating and petrochemicals.

This is supposed to be a good thing, according to the Times. It shows how important solar power has become in taking people out of unemployment lines and giving them productive jobs, the paper suggests.

Indeed, the article notes, California had the highest rate of solar power jobs per capita in 2016, thanks to its “robust renewable energy standards and installation incentives” (ie, mandates and subsidies).

In reality, it’s not a good thing at all, and certainly not a positive trend. In fact, as Climate Depot and the Washington Examiner point out — citing an American Enterprise Institute study — the job numbers actually underscore how wasteful, inefficient and unproductive solar power actually is.

That is glaringly obvious when you look at the amounts of energy produced per sector. (This tally does not include electricity generated by nuclear, hydroelectric and geothermal power plants.)

  • 398,000 natural gas workers = 33.8% of all electricity generated in the United States in 2016
  • 160,000 coal employees = 30.4 % of total electricity
  • 100,000 wind employees = 5.6% of total electricity
  • 374,000 solar workers = 0.9% of total electricity

It’s even more glaring when you look at the amount of electricity generated per worker. Coal generated an incredible 7,745 megawatt-hours of electricity per worker; natural gas 3,812 MWH per worker; wind a measly 836 MWH for every employee; and solar an abysmal 98 MWH per worker.

To continue reading: More Solar Jobs Is a Curse, Not a Blessing

The Next Stock Market Crash Will Be Blamed On Donald Trump But It Will Be The Federal Reserve’s Fault Instead, by Michael Snyder

Actually, the Federal Reserve won’t be responsible for the next stock market crash; a dramatic change in social mood will. However, Michael Snyder makes the important point that President Trump will not be responsible. From Snyder at

A stock market crash is coming, and the Democrats and the mainstream media are going to blame Donald Trump for it even though it won’t be his fault.  The truth is that we were headed for a major financial crisis no matter who won the election.  The Dow Jones Industrial Average is up a staggering 230 percent since the lows of 2009, and no stock market rally in our history has ever reached the 10 year mark without at least a 20 percent downturn.  At this point stocks are about as overvalued as they have ever been, and every other time we have seen a bubble of this magnitude a historic stock market crash has always followed.  Those that are hoping that this time will somehow be different are simply being delusional.

Since November 7th, the Dow is up by about 3,000 points.  That is an extremely impressive rally, and President Trump has been taking a great deal of credit for it.

But perhaps he should not have been so eager to take credit, because what goes up must come down.  The following is an excerpt from a recent Vanity Fair article

According to Douglas Ramsay, chief investment officer of the Leuthold Group, Trump administration officials will come to regret gloating about the market’s performance. That’s because Trump enters the White House during one of the most richly valued stock markets in U.S. history. The last president to come in at such valuations was George W. Bush, and the dot-com bubble burst soon afterward. Bill Clinton began his second term in a more overvalued stock market in 1997, and exited unscathed. But if his timing were different by just a year, he would have been blamed for the early-aughts market crash.

This stock market bubble was not primarily created by Barack Obama, Donald Trump or any other politician.  Rather, the Federal Reserve was primarily responsible for creating it by pushing interest rates all the way to the floor during the Obama era and by flooding the financial system with hot money during several stages of quantitative easing.

To continue reading: The Next Stock Market Crash Will Be Blamed On Donald Trump But It Will Be The Federal Reserve’s Fault Instead