Disruptive innovation and The Warriors

One of my top ten movies of all time is the classic 1979 flick The Warriors. It’s based on (a novel that’s based on) Xenophon’s Anabasis, updated so that it follows a gang based in Coney Island whose members have to fight and sneak their way back from the Bronx, dodging the police and every other gang in New York City along the way. If you haven’t seen it, I recommend it. It’s not a spoiler to tell you that the viewer finds out they’re marked men almost immediately, while the characters themselves only find out during the course of the movie. </intentionally vague>

I owned a cell phone for several years before I ever saw The Warriors. I couldn’t help thinking, even as I first watched it, that you could never make a movie like that nowadays. Cell phones make it so easy to exchange information that our world is very different from the world of 1979. I remember a time when, like almost all human beings who ever lived, I had to coordinate plans with people without cell phones. It seems like a different era!

Innovation changes our lives on different margins all the time, and we rarely get the opportunity to appreciate it. Whether innovation is in technological capability, organizational practices, or social movements, it’s disruptive. It changes things. It’s a minor, relatively unimportant consequence that a book or movie like The Warriors would simply not be believable in the modern day. It’s a much more important consequence that a movie like 12 Years a Slave could not be made in the modern period.

Hardly any significant change in the world happens quickly. Most important progress is made a little at a time. These increments of progress are so small we rarely notice them individually, and only when the dam bursts does the broader picture become intelligible to us. A dramatic event like the American Civil War is easy to remember and point to, but the elimination of institutional slavery throughout the civilized world was several hundred years in the making.

I don’t mean to suggest that we should not aim for large-scale reforms of things we find objectionable. Obviously it is important to keep end goals in mind. I only mean to say that most of the things we consider victories when we look back at history were the accumulation of innumerable smaller things that were not usually memorable in themselves. What starts as the impossibility of remaking The Warriors in the present ends up as the impossibility of remaking 12 Years a Slave in the present.

The minimum wage is a technical issue, not a partisan issue

One of the problems involved with discussing a minimum wage or increases in the current minimum wage is that, for most people, this is a Democrat vs. Republican issue. As the issue usually goes for left-leaning people, Democrats are trying to help poor people, so they favor increases in the minimum wage, and Republicans are indifferent to the suffering of the poor and only interested in helping wealthier people (roughly speaking, employers), so they oppose increases. As the issue usually goes for right-leaning people, Democrats are trying to interfere with the free market based on an ideological crusade, while Republicans are trying to defend the free market against this kind of political interference which helps Democrats in the short run and hurts the economy as a whole in the long run.

To an economist, this kind of political focus is a distraction at best. While many, perhaps most economists in the United States have some kind of party affiliation, this is not a political issue so much as a technical issue. As a technical issue, there’s a better and a worse answer, and these don’t depend on the ideology of the person advancing the argument.

I have no party affiliation. When I say I don’t favor increases in the minimum wage, it’s not because I buy the Republican argument. It’s because I don’t buy the monopsony argument. And because the economic theory we all rely on doesn’t support minimum wage increases as helping the lot of the poor. And because I don’t believe that either Republicans or Democrats are particularly correct in their positions; politics is mostly about symbolism, and the consequences, frankly, are for nerds to work out quietly where nobody will notice. Ultimately, it’s because I think increases in the minimum wage harm most people, and most directly harm the worst off among those physically and mentally able to work.

If the Democratic Party really cared about helping the poor in the long run, I’d be sympathetic. If the Republican Party really cared about the free market, I’d be sympathetic. It’s just that I see little evidence that they actually hold those positions. As far as I can tell, making war on the poor and on the free market is part and parcel of what both parties do. One of the things I appreciate most about the left-libertarian movement is how its adherents devote so much energy to cataloging the innumerable ways that governments make war on the poor by making war on the free market. There are excellent theoretical reasons to think that if the free market actually existed anywhere, instead of a very thoroughly mixed economy in most places, this would be a good thing for the poor. The winners in the current system are already the winners; they gain little by changing the game.

I worry that what I’m writing here may be incomprehensible to the average political partisan in the United States or Europe. To break everything down into good guys vs. bad guys is too easy a mental error to make, and to step outside of that framework is too unfamiliar. But economics does, in fact, deal with technical issues and not partisan issues.

Plastic bag taxes, gasoline taxes, and the minimum wage

Many US cities and counties have implemented plastic bag taxes at grocery stores, raising the price of the bags. This is rightly interpreted as a measure that will cut down on the use of plastic bags. I don’t think anybody believes a tax of 5¢/bag will eliminate their use entirely, but I can’t think anybody doubts it will lead to fewer bags being used. Shoppers react in predictable ways. If buying a small number of items, they may skip the bag. They may put more items into each bag than they would have before. Some shoppers now bring their own reusable grocery bags to the store.

The US federal government, US states, and more local levels of government apply excise taxes to gasoline, raising the price of the gasoline. These revenues go to fund a variety of other things, mainly road construction and maintenance, but it is also widely (and correctly) believed that increases in gasoline taxes lead to less gasoline being purchased. Drivers react in many ways. They may use other forms of transportation more, carpool, combine errands into one trip, etc., and in the long run buy more fuel efficient automobiles.

Most proponents of these taxes acknowledge that, yes, the product in question is used less than it would be otherwise because of the tax, but think it’s a good thing. One may agree or disagree about the desirability of the consequences, but I don’t find that people dispute that the people who purchase and consume the resources will adjust in certain predictable ways along certain predictable margins.

For my final example, the US federal government, almost all US states, and many more local levels of government have legislated minimum prices for labor, raising the price of some labor…

People may agree or disagree about the desirability of the consequences, but to pretend that there is no tradeoff happening is irresponsible at best. If you recognize the economic logic at work in the first two examples, it takes a lot of explaining to do to say that the same economic logic doesn’t apply in the third. It’s entirely possible that countervailing phenomena at play in the labor market overwhelm this phenomenon; many economists brighter than I am have claimed this to be true. But simply asserting that the minimum wage is a matter of social justice or social responsibility does not help you understand the actual effects, nor does it help the people whose labor has been adjusted away from by purchasers of labor. Of course it’s a desirable goal that the worst off should see their lot in life improve, but what’s at issue is whether this policy actually does that or not. If the goal is important, it’s important to find out if the means chosen to achieve that goal can actually do it.

For more information on this topic, I recommend about 100 posts on Cafe Hayek.

Atomism and the living wage

The charge of thinking about people atomistically is frequently leveled at libertarians, often at economists, and inevitably at libertarian economists. I find that particularly ironic in the face of some “living wage” arguments. The idea that a low-skilled laborer deserves a wage he can live on, and in some variants support a family on, presupposes that he needs to live on it. While it’s true that many unskilled and low-skilled jobs are done by adults, a great many of them are done by teenagers who do not live on their own and hence do not “need” to be able to support themselves. Even among adults, many adults in low-wage positions live with other workers, whether roommates, partners, or spouses. To assume that all low wage earners are therefore struggling to get by and need help from policy makers seems, well, atomistic.

Everybody wants low-wage earners to be better off. I also grant that many people are desperately poor and have few or no options for help from family, friends, and others. But policy does not happen in a vacuum, and low-wage earners are not atomistically separate. It is socially irresponsible not to take these facts into account when considering policy.