Edmund Phelps and Unemployment

On this econtalk  Edmund Phelps talks about the tendency to have some level of persistent involuntary unemployment.  He says that most everyone who has a job is overpaid becuase of the cost to employers of turnovers and keep the employees motivated and reasoably happy to work for the employer.

This overpayment leaves insufficient money to reach the market clearing 100% rate of employment and instead  we have some persistent level of unemployment.  I think he estimates that about  4% unemployment it about as close as we can get to full employment without creating a future distortion.  

It seems that a increase in the rate of inflation can lower unemployment below 4% but since you cannot keep raising the rate of inflation for very lowing when you stop the unemployment rate will rebound to above 4%. 

It would then be logical that in a period like we are in right now of a sharp decline in the inflation rate, people with jobs would tend to be even more overpaid, leaving even less money available to increase hiring and producing a high level of un-employment like we have today. 

One response to this could be for the unemployed to accept very low wages much below their productivity level.   The minimum wage would stand in the way of this,  an hourly wage subsidy would work much better than this. 

When pushing government to act on a problem we should keep in mind that political realities make Governments do things roundabout and very inefficient ways.  I think therefore that if you are a supporter of raising the pay of the people at the bottom of the wage pyramid that you should think hard about possible offsetting behavior and never compromise and accept something like a minimum wage.  Such compromises are often worse than nothing. 

Super Bugs and Super Weeds

When greens talk about proper use of DDT and roundup, I support them, externalities do exist after all, but many if not most want to ban its use altogether.  

I hear people who want a total ban on the use of DDT and Roundup, who justify such by citing super bugs or super weeds.  Super bugs or super weeds are just bugs/weeds resistant to the pesticide or herbicide that they want banned anyway so what what is the big deal? 

Part this has to do with optimism verses pessimism if one is optimistic about a richer better future he says lets maximize the befits from roundup and DDT now when we need them more.  Future generations will have better ways to deal with bugs and weeds.  Even if they don;t they will surely have better means of dealing with other problems leaving them able to invest more of their energy on growing food. 

BTW resistance usually costs energy to an organism  and so if we stopped using DDT or Roundup the resistance would slowly be lost. 

A payment method that makes sense for 3% of the economy does not make sense when the sector balloons to 20% of the economy.

Here is an article that suggests life time health insurance

He suggests legislation that builds a a life time insuance scheme but we can build such a scheme ourselves. 
He like most people debating this issue ignores the fact that if an expensive medical intervention works one can amortize the bill over time. Since young people can amortize a bill, people do not ever need anything more than very high deductible insurance throughout life. People could take the difference between a very high deductible premium and a comprehensive plan premium and save it for future expenses. You could use this to keep your medical spending stable throughout life.

The only question is why do they not do this. My theory is that employers took on medical insurance when medical spending was small and so it made sense for them to do so. Now employers are increasing deductibles and dropping insurance which makes sense (who wants someone else to make 20% of their expenditures) but is perceived as bad and painful.
A payment method that makes sense for 3% of the economy does not make sense when the sector balloons to 20% of the economy.

You Say the USA Should Have Better Mass Transit Like in Europe?

The average government job pays almost three times the average private-sector job. The national railroad has annual revenues of 100 million euros against an annual wage bill of 400 million, plus 300 million euros in other expenses. The average state railroad employee earns 65,000 euros a year. Twenty years ago a successful businessman turned minister of finance named Stefanos Manos pointed out that it would be cheaper to put all Greece’s rail passengers into taxicabs: it’s still true. “We have a railroad company which is bankrupt beyond comprehension,” Manos put it to me. “And yet there isn’t a single private company in Greece with that kind of average pay.”

Government Subsidized Universities Marketing

My son Daniel is senior in high school and he is getting a lot of marketing material from government subsidized universities.  How does this make sense?  This is from in state schools and out of state schools.  Should the tax payers support this?

I imagine that this low cost but still why market something that will costs you more expense.

You have a case where government subsidized universities are competing against each other.

One could argue that it could encourage more students to go to college (most people seem to that is good, I do not) but he did not start getting much marketing material until after he took the SAT signaling that he intended to go to college.

One could also say that it serves the function of funneling students to the school that is best for them but I find that pretty weak, the child could find that out on his own and marketing materiel does not cover much that would reveal that.

On Abolishing the Fed and Replacing It with Nothing

Why not abolish the Fed and replace it with nothing . . .


Producing money has historically been a sovereign monopoly, but it’s not a public good. Barons, kings, and bishops outlawed private mints so they could gain monopoly profits on the seigniorage.  Is monopoly ever good? 


The U.S. and Britain went the opposite way, charging zero seigniorage so that private mints were unprofitable. But when gold and silver were discovered in the American west, the government was a bit slow to establish a branch mint. A private mint quickly sprang up in Denver, charging seigniorage a bit below the cost of shipping metal to Philadelphia and back.


The Fed doesn’t need to be ‘replaced’, not by the government anyway. The market will provide money, one way or another.


I know, we would have to do without all the brilliant policies that central bankers use to smooth out the trade cycle. But they aren’t working out so well, are they?


The U.S. had its first trade-cycle downturn in the 1820s, when the Second Bank of the United States was in operation.


Has our economy been generally less unstable with central banking than without?  I do not think so. 


The median voters ideas about what money is and how the monetary system works are so far from reality that they cannot be expected to oversee the system and in a democracy the  median voters rules.

I Found a Great Quote

Men do not make laws. They do but discover them.
-- Calvin Coolidge, 1914        

Calvin is often quoted which is interesting because he is known as being very taciturn.