From Nobel Laureate James M. Buchanan in the Wall Street Journal:
“no self-respecting economist would claim that increases in the minimum wage increase employment. Such a claim, if seriously advanced, becomes equivalent to a denial that there is even minimum scientific content in economics, and that, in consequence, economists can do nothing but write as advocates for ideological interests. Fortunately, only a handful of economists are willing to throw over the teaching of two centuries; we have not yet become a bevy of camp-following whores.”

Bryan Caplan has a nice blog today which touches on a topic of particular interest for New Mexicans.

Thanks to Micha Gisser for sending the following comments:
Some Comments on Minimum Wage laws
Micha Gisser
Minimum wage laws at the federal level have a long history. In 1938 Congress legislated a statutory minimum wage rate as part of the Fair Labor Standards Act. Initially, the federal minimum wage rate was established at $0.25 an hour. Since then, to adjust for the inflation erosion, it was raised many times. For example, the minimum wage was $3.35 in 1981 and $4.25 in 1991, and it has been $5.15 since 1997. The U.S. Labor Department estimated that this increase in the minimum wage rate between 1981 and 1991 led to a loss of 100,000 jobs, mostly women and teenagers in two-or three-earner families. Since most skilled workers earn wages above the minimum wage, they are not directly affected by it. Thus, most of the effects of the minimum wage fall upon unskilled workers. Early on, Jacob Mincer (1) demonstrated that the imposition of a minimum wage rate reduced the employment of all teenagers, of males 20 to 24 years of age, of females in general and the employment of males 65 years and over. He also demonstrated that the minimum wage law discouraged many workers from remaining in the labor force.
Most of the economic empirical research supports the theory that clearly shows that imposing statutory minimum wage rates results in unemployment among women, minorities and teenagers. However, more recent studies by David Card and Alan Krueger (2), claimed that New Jersey data did not support reduction in employment after the 1990 and 1991 federal minimum-wage increases. In New Jersey the increase was minimal, from $3.35 to $4.25 an hour, in contrast to the increase in Santa Fe. More importantly, studies by Donald Deere, Kevin M. Murphy, and Finis Welch (3), David Neumark and William Wascher (4), and other researchers demonstrated that the research methods used by Card and Krueger are flawed.
The major negative impact of minimum wage laws is unemployment among unskilled workers—mainly teenagers, women, and minorities—leading to heavy welfare losses to these groups. But there are other economic disruptions that are less visible. An example is the reduction of fringe benefits to mitigate the higher wages that must be paid to unskilled labor. Also, minimum wage laws suffer from poor targeting, e.g. tipped employees and employees from one-or two-family earners. On that, a detailed analysis is provided by Finis Welch. (5).
The ceteris paribus issue is relevant for statistical studies. For example, employment in Santa Fe may have increased recently because employment in New Mexico probably increased recently, and Santa Fe is an integral part of New Mexico’s economy.
Raising the federal minimum wage may cause cost-push inflation, followed by a demand push inflation if the Fed attempts to ease the money supply.
References
(1) Jacob Mincer, “Unemployment Effects of Minimum Wages,” Journal of Political Economy, vol. 84, August 1976. Pp. S87-s104.
(2) David Card and Alan Krueger, “Minimum Wages and Employment: A Case Study of the Fast-Food Industry in New Jersey and Pennsylvania,” American Economic Review, September, 1994.
(3) Donald Deere, Kevin M. Murphy and Finis Welch, “Employment and the 1990-1991 Minimum Wage Hike,” American Economic Review, Papers and Proceedings, May 1995.
(4) David Neumark and William Wascher, “The Effect of New Jersey’s Minimum Wage increase on Fast-Food Employment: A Reevaluation Using Payroll Records,” American Economic Review, Papers and Proceedings, May 1995.
(5) Finis Welch, “Minimum Wage Issues and Evidence.” American Enterprise Institute for Public Policy Research, Washington, D.C., 1978.

If there is a principle which unifies the last three hundred years of economic research it is this: When two adults voluntarily consent to trade, each gain. To take a concrete example, if you hire me to cut your lawn for $5 an hour and I agree to that wage, we are both better off for having made the agreement. I must value the $5 more than I dislike the work, otherwise I wouldn’t have agreed to it. Conversely, you must value a trimmed lawn more than the $5 otherwise you wouldn’t have parted with your money. I may prefer that I make $15 an hour and you may prefer to pay me zero. But since neither of us is permitted by law to coerce the other, each of us will have to compromise. And when we do, we both stand to gain. Sometimes I think that this principle might be so simple it evades people. That seems to be the only explanation for perennial attempts to raise the minimum wage.
A minimum wage law–sometimes called a “living wage” or a “fair wage”–tells mutually consenting adults that though they have found a price which is agreeable to both, they cannot trade at that price. For those of us concerned about civil liberty, this is quite distressing. It is a blatant violation of our most basic (and ancient) right of voluntarily association with our fellows.
To the economist interested in social justice, a minimum wage law is more than distressing. It is a travesty. This is because minimum wage laws end up hurting the very people they were designed to help.
To understand how, we must begin with an important corollary to the “gains from trade” axiom. This corollary is the principle that market prices and wages have a tendency to naturally settle at those values which maximize the number of mutually beneficial trades. That is, the market wage rate will tend to maximize employment given the willingness of people to hire employees and the willingness of employees to work.
To be sure, this “equilibration” process does not work perfectly. It works best, however, when left alone. When minimum wage laws interfere in the process by raising wages above the equilibrium rate, employers and employees who would otherwise come to an agreement fail to do so. That means people who would otherwise be employed cannot find work.
Think of how employers make decisions. Even the most benevolent employer on the planet needs to make a profit. That means she can’t spend more money on her employees than they make for her business. There are low skilled workers (usually young workers with little experience or training) who are willing to work for low wages to get a start in life. If a law forces a potential employer to pay her employees more than they can make her, the employer will not take a loss for the sake of humanity. Instead, she will hire fewer workers. She may be able to automate some of her work (substitute capital for labor in the parlance of the economist). She can also move her business somewhere else where minimum wage laws are not so far above equilibrium. If none of those options are available, she may even go out of business. (It is worth noting that large employers tend to have greater resources and can do without the employees more easily than smaller businesses.)
Just as employers and employees stand to gain from trade, both stand to lose when minimum wage laws obstruct it. The sad thing is that employees are the worst hit because they lose everything.
It would be nice if we could wave a wand and raise everybody’s wages without decreasing employment. But the fact is that ours is still a free society (thankfully) and employers aren’t obliged to hire any number of workers at any price. Mutual gains would be possible for all of us if more well-intentioned politicians knew this.

I wonder why so many politicians and voters actually think that a social security “trust fund” actually exists. Are they that dumb? Or, are they deliberately misleading? It has to be one or the other.
Here is the best piece of writing — clear and short — I have seen explaining how social security affects overall spending and taxing.

It is distressing to see that Bruce Bartlett is waving the white flag on taxes and spending. That is his rationale favoring a value added tax.

A few years back my brother passed along what I thought a delightfully fun fact: Jimmy Buffet is Warren Buffet’s nephew. Since then, I’ve been passing this little nugget along to all who would listen (and probably a few who didn’t want to but did anyway).
Unfortunately, yesterday’s Wall Street Journal (subscription required) made liars out of both us—not to mention all the people we told (okay, so none of them cared enough to keep the fun fact going, but if they had, they would be liars too). It turns out that Jimmy and Warren might be related…but only distantly. Warren’s sister is an amateur genealogist and contacted Jimmy and hundreds of other Buffets years ago in hopes of piecing together her family tree. Jimmy responded (after a year) and actually became good friends with Warren’s sister. Soon Jimmy and Warren were good friends. Warren refers to the singer as “Cousin Jimmy.” Jimmy calls the financier “Uncle Warren.”
All of this has led me to question another fun fact that I’ve been passing around. Is New Mexico’s George Buffet (the man behind the candy cane) really related to Warren?

Check out this great essay by Walter Williams.

Congratulations to Utah! Both houses of the legislature (by 90 percent majorities) have decided to opt out of the No Child Left Behind abomination. Thanks to Chuck Muth for the heads up.
This is a no brainer, New Mexico. Let’s go for it!

Here is what I think a fascinating article. It is long, but so worth it. It is about “The Constitution in Exile” movement.
For one thing, it’s fascinating to hear the author describe standard Lockean arguments upon which our republic was founded. He writes with a tone which indicates that he thinks these are crazy new ideas:
“As Epstein sees it, all individuals have certain inherent rights and liberties, including ”economic” liberties, like the right to property and, more crucially, the right to part with it only voluntarily. These rights are violated any time an individual is deprived of his property without compensation — when it is stolen, for example, but also when it is subjected to governmental regulation that reduces its value or when a government fails to provide greater security in exchange for the property it seizes.”
Or try this one:
“[Epstein] insists that if the government wants to reduce the value of an individual’s property — with zoning restrictions, for example — it has to compensate him for the lost value.”
I also like the movement’s occasional skepticism of states-rights, which I have shared for a long time:
“One of Greve’s goals at the American Enterprise Institute is to convince more mainstream conservatives that traditional federalism — which is skeptical of federal, but not state, power — is only half right. In his view, states can threaten economic liberty just as significantly as the federal government.”
Finally, the article talks about a few Supreme Court Nominee possibilities that would be awesome. For example, Judge Janice Rogers Brown, who has referred disparagingly to ”the dichotomy that eventually develops where economic liberty — property — is put on a different level than political liberties.”
Amen!
Thanks to Alex Tabarrok for the pointer.

According to Council On State Taxation (COST) New Mexico ranks 46th lowest (see Table 4, page 8) out of the 51 (states and DC) for effective tax rate on business in FY04. Since the GRT rate has gone up substantially over the past year, our business friendliness is likely to erode even further. So much for being open for business in NM.

Check out this study just released by the Manhattan Institute.
According to the press release:
“A new study by Manhattan Institute scholars Jay P. Greene and Marcus A.
Winters finds that decreasing the size of a state’s school districts
leads to substantial improvements in its public high school graduation
rate. Conversely, consolidating school districts into fewer, larger
units decreases a state’s public high school graduation rate.
The results of the analysis indicate that decreasing the average size of
a state’s school districts by 200 square miles would lead to an increase
of about 1.7 percentage points in its graduation rate. This finding is
particularly important for New Mexico, which has the nation’s 6th largest
school districts. If New Mexico decreased the size of its school
districts to the national median, it would increase its graduation rate
by about 9 percentage points, improving it from 65% to about 74%.”
My take: While there are obvious difficulties in reducing district size in New Mexico’s rural areas, the overall move toward more centralization (while calling it “reform”)is counterproductive. Smaller districts mean that it is less costly for parents to move their child from a bad school to a better one, creating an element of choice and competition.
What we need is reform that works.

Can you match my perfect score on this quiz about mercury?

As usual, NM does things differently. Based on a survey of 120,464 people, here is a map showing what words people use when referring to soft-drinks. Casual observation seems to show the Land of the Enchantment is also the land of diversity. In fact, we seem to be the least-homogeneous of all the states. No sheep here!
Thanks to Tyler Cowen for the pointer.

Like the Founding Fathers, I have never been extremely enamored of democracy. Usually, when I tell people this, they jump to the assumption that I must prefer autocracy or one of its variants. But you see it’s not the “demos” (people) part of democracy to which I object. Rather, it is the “kratia” (rule) part.
I think the happiest places on earth are those where individual rights reign supreme, and no one–not king, council or even a popular majority–is permitted to invade certain inalienable rights of the individual. To ensure these rights, strong (explicit or implicit) constraints on those in possession of political power are necessary.
In the US, an important aspect of that constraint is, of course, the Constitution. Expressing a common belief of the founders, the chief architect of that document, James Madison, noted that, “…democracies have ever been incompatible with personal security or the rights of property; and have in general been as short in their lives as they have been violent in their deaths.” He went on to argue, “A republic, by which I mean a government in which the scheme of representation takes place, opens a different prospect and promises the cure for which we are seeking.” (See Federalist 10)
In other words, representative government is one way to keep the majority from running roughshod over the minority. That is why Madison and company gave us, in Franklin’s words, “A republic, if you can keep it.”
In many ways we haven’t. Over the last 100 years, the United States has seen an explosion in direct democracy. In 1897, South Dakota became the first state to adopt the popular initiative and referendum. The former allowed citizens to introduce their own legislation and the latter allowed them to vote on issues originating in the legislature. Over the next 20 years, half of the other states in the union adopted similar measures.
As a (small ‘r’!) republican, I have tended to regard this change as unfortunate. By empowering the majority to make whichever laws it sees fit, I worry that the states have slowly eroded the rights and freedoms individuals.
Despite, these misgivings, I must admit that the empirical evidence appears to be against me. The economist, John Matsusaka, of the University of Southern California, for example has found that while initiatives do “not have a consistent effect on the overall size of state and local government” they do “systematically lead to more decentralized government,” which is generally considered by public choice economists to be more efficient than centralized government. Matsusaka has a forthcoming article in the Journal of Economic Perspectives which declares “Direct Democracy Works.” He has also begun an Institute dedicated to promoting direct democracy.
Other scholars have found similar results. The European economists Bruno Frey and Alois Stutzer studied direct democracy in Switzerland where citizens in some cantons have greater access to instruments of direct democracy than citizens in other cantons. They found that it “systematically and sizably raise[d] self-reported individual well-being.” As an aside, they also found that local autonomy appears to increase happiness.
As an unabashed fan of limited government, I also can’t help but be impressed with initiatives like California’s Prop 13 or Colorado’s Taxpayer Bill or Rights. Perhaps New Mexican’s should consider direct democracy as well?

Want to learn a little economics? Check out this informative and entertaining essay by Russ Roberts.

The BEA has just released per capita personal income statistics for 2004. The bad news: New Mexico still ranks 47th among all states and the District of Columbia. The good news is that we are growing faster than in the past. Our growth of per capita personal income over 10 years ranks 32nd (no longer at or near last).
Why the improvement? Some of it is just plain luck. Our energy sector is enjoying high prices. We have a large government component that is resistant to the national downturn over the past four years.
Former Governor Gary Johnson probably deserves some credit. He mananged to hold the line on taxing and spending for 8 of the 10 years while most other states were not so fortunate. They are coming down to meet us. Unfortunately, that will probably not last because of our current spending binge.

The new tax bill does nothing to help beleagured service providers in NM. Read it and weep.

“[NEW MATERIAL] CREDIT–GROSS RECEIPTS TAX–GOVERNMENTAL GROSS RECEIPTS TAX–CERTAIN SALES FOR RESALE.–
A. A taxpayer may claim a credit against gross receipts tax or governmental gross receipts tax due for each reporting period beginning after June 2005 in an amount equal to ten percent of the receipts from selling a service for resale multiplied by:
(1) three and seven hundred seventy-five thousandths percent if the taxpayer’s business location is within a municipality; or
(2) five percent if the taxpayer’s business location is in the unincorporated area of a county.
B. A taxpayer may claim a credit pursuant to Subsection A of this section only if:
(1) the buyer resells the service in the ordinary course of business;
(2) the resale is not subject to the gross receipts tax or the governmental gross receipts tax; and
(3) the buyer delivers to the seller documentation in a form prescribed by the department clarifying that the service is purchased for resale in the ordinary course of business.
C. A credit permitted pursuant to this section does not apply to receipts from selling a service to a governmental entity or to a person who is a prime contractor that operates a facility in New Mexico designated as a national laboratory by and act of congress.”

We now have suffered from 3 sessions of out of control spending. Here is a quick “back of the envelope” calculation of Big Bill’s spending problem. Adjusted for population growth and inflation, at the current rate of increase real spending will have increased by almost $400 million (in 2005 dollars) by the end of his first term. Contrast that with the increase during two terms for Governor Johnson: $360 million (in 2005 dollars). Our governor has managed to squander the opportunity to provide the needed tax relief that will lead NM to prosperity.

Check out this great post by Michael Munger at Division of Labour. He describes how gas prices have behaved over time in real (inflation adjusted) terms.
Another way to look gasoline prices is to ask: how much gasoline will an hour of my labor purchase? In 1981 the average New Mexican could obtain 5.2 gallons of gasoline for one hour of labor. This year she could obtain 7.4 gallons of gasoline for one hour of labor, 42% more than in 1981(nominal price data from DOE, nominal wage data from BEA).
We never like it when the price of gasoline, or anything else, rises. The average New Mexican would be much happier being able to purchase 10 gallons of gasoline for one hour of labor, as was the case less than one year ago. But let’s put the price of gasoline in perspective; this is not the end of civilization as we know it.
BTW, government itself is responsible for keeping gasoline prices higher than necessary.

According to Chuck Muth:
In Arizona, folks who donate money to a scholarship program allowing kids to attend schools other than the government mis-run re-education camps are allowed a tax credit for such donations. The ACLU, naturally, sued to kill off this school choice program, maintaining that it was a violation of the religion provision in the First Amendment.
Yesterday, Federal District Court Judge Earl Carroll tossed out the ACLU lawsuit. The program was defended in court by the libertarian Institute for Justice.

My colleague at George Mason, Bill Butterfield, (an excellent blogger, incidentally) recently wrote about a conversation we had while strolling down Bourbon Street in the Big Easy.
Bill writes:
“My problem with libertarians is that they overly discount meddlesome preferences. They claim they have none, which is the source of their sense of moral superiority. But meddlesome preferences are preferences just the same, everyone has them and they must be included in any attempt to maximize utility from a policy perspective.”
I would not claim that libertarians are without meddlesome preferences. I, for instance, would love to meddle in a lot of the decisions of others (for example, Fox should not be allowed to cancel “Arrested Development”!).
That said, the libertarian perspective is that we should honor individual rights (more precisely, “negative rights”). To do so, the rest of us are obliged to refrain from certain activities—including meddling.
A few examples: You have a right to life. I, therefore, am obliged not to kill you. You also possess a right to property, so I shouldn’t be allowed to take your iPod.
Though I may have a “meddlesome preference” for invading your rights and taking your property, I have a stronger preference for having my own rights respected and keeping my own property. Being a member of a liberal (libertarian) society, means that I agree to forfeit my right to act on my meddlesome preferences in exchange for living in a society in which no one else is permitted to act on their meddlesome preferences. For most of us, I think the trade-off is well worth it (the rest, of course, are free to join restrictive religious groups or even secular communes).
The economist in me would point out that well-defined, exchangeable rights in property provide entrepreneurs an incentive to take account of the preferences of others. Most people–even libertarians–want to live in neighborhoods without strip clubs. The home developer who appreciates this will make a profit. The developer who sells a unit to Larry Flint’s Strip Club in the middle of a residential neighborhood will not become a wealthy man.
I would much prefer to live in a system based on personal rights which restrain the meddlesome preferences of my fellows than in a system ruled by the meddlesome whims of the median voter.

From P.J. O’ROURKE: “There are just two problems with mass transit. Nobody uses it, and it costs like hell.”
There is the huge up-front cost. Also, and “less obviously, there’s all the money spent locally keeping local mass transit systems operating.” For example, the Hiawatha Line in Minneapolis is estimated to cost $19 for each ride. At that rate “commuting to work will cost $8,550 a year. If the commuter is earning minimum wage, this leaves about $1,000 a year for food, shelter and clothing. Or, if the city picks up the tab, it could have leased a BMW X-5 SUV for the commuter at about the same price.”
Since the state taxpayers would be picking up the tab for Belen-Albuquerque train riders, let’s do something really cool and lease them BMW’s instead.

Thoughts of Micha Gisser on the pre-K debate:
When it suits the political ambitions of the voucher enemies, they will find all the reasons in the world to justify allocating state money to Pre-K as legally “kosher.” They not only support private participation in the Pre-K project, they also justify participation of faith-based preschools. In fact, Dan Pearlman, legal counsel for the state Children, Youth and Families Department, said “faith-based preschools could receive state money if they agree not to use religious programming for the 2 and 1/2 hours the state was footing the bill.” I oppose the Pre-K Bill, but its flip side, if it passes, is that it creates a precedent for passing a voucher bill that will include private and religious schools.