The other day Mary Katharine Hamm tweeted a link to one of those utterly predictable stories about how corporations with more lobbyists pay lower taxes or some such. She also remarked “complexity is a subsidy” — and that really stuck with me. In many respects those four words distill vast swaths of scholarship from everyone from Friedrich Hayek to Charles Murray.

Again, it’s not a new idea, but I think it’s an extremely useful and pithy description of a very complex argument. The more that financial success depends on high IQ; the more demand there is for lawyers, lobbyists, and accountants; the more onerous regulations become for men-with-strong-backs to find work or for entrepreneurs to start businesses — then the more we move towards a society where the government rewards people based on their ability to navigate paperwork or fulfill quotas on a political to-do list. Complexity benefits statists because increasing complexity allows statists to claim we need more government to help people navigate through these complex times. In the process of helping, they make the government more complicated, creating new services for “fixers” of all stripes to solve problems the statists created in the first place.

The more you look around at spots where society and government intersect, the more you can see how pervasive and pernicious this dynamic is. The more rules you have, the more power you bequeath to the people well-suited to make or manipulate the rules.

While Rep. Judy Chu (D-Calif.) has decried Wal-Mart’s “ability to…drive all other competitors away” with rock-bottom prices, many Chinatown residents, suffering for years from gouging by the local markets, would probably say “good riddance.” In what must frustrate the unions most, the typical argument that products “Made in China” are inherently inferior doesn’t work in Chinatown. “I come from China, too!” one of the old Chinese ladies protesting in favor of Wal-Mart said. “We Chinese are cheap!” another pro-Wal-Mart elderly lady told me.

I’ve said it before and I’ll keep saying it. Wal-Mart does more to help poor people than anything of the anti-Wal-Mart crowd could ever dream of doing.

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David Autor of MIT talks with EconTalk host Russ Roberts about the Social Security Disability Insurance (SSDI) program. SSDI has grown dramatically in recent years and now costs about $200 billion a year. Autor explains how the program works, why the growth has been so dramatic, and the consequences for the stability of the program in the future. This is an illuminated look at the interaction between politics and economics and reveals an activity of government that is relatively ignored today but will not be able to be ignored in the future.

Some interesting facts.

• Disability insurance includes both a monthly cash payment as well as access to Medicare.
• The disability rolls have more than doubled in in the last 13 years, from 1.2 million people to 2.9 million people.
• Divided by the number of U.S. households, we’re spending more than $1500 per U.S. household, on disability insurance.
• By law, the program is biased on favor of people making disability claims. It’s comparatively easy to get disability and very, very hard to prove that someone either no longer needs disability or that they made a fraudulent claim in the first place.
• Law firms helping people get disability are entitled to 25% of the disability back benefits. Each year, the Social Security Administration pays out more than $1 billion to these law firms.
• In 1984, SSDI consumed 5% of all Social Security revenues. In 2004, SSDI consumed 10% of all Social Security revenues. It now consumes all of the dedicated SSDI revenue and is cutting into the general Social Security revenue. At the current rate of expenditure, the SSDI trust fund will be exhausted within 5 years.

It looks like SSDI is something that we need to start thinking about reforming as well, as it grows increasingly more expensive to maintain.

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If you had asked an 11-year-old Jeff Bezos to let his imagination run wild and think of the stuff that he would most dream to have as an adult, he might have said:

The world’s biggest bookstore! Maybe even a bookstore that can beam any book directly to your hand in an instant (and movies and music, too!).

A giant sky computer that can imitate human intelligence. 

A spaceship.

…And maybe even a robot army. 

Of course any adult would have smiled slightly condescendingly, patted him on the head and helpfully explained that these things aren’t possible. 

This is so great. I love what Jeff Bezos has done for the world.

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Because the budget is so far from being sustainable, budget rhetoric needs to be re-interpreted.

When their side refuses to cut spending because it would be “cruel,” they are ensuring that future spending cuts will be even crueler.

When our side refuses to raise taxes, we are ensuring that future tax increases will be higher.

Until the baseline is a sustainable budget, the rhetoric will be the opposite of reality.

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A friend of mine linked to this article, from Facebook, upset that Republican State Senator Glenn Grothman isn’t concerned about the male-female pay gap. So, I read the article. And, wow. It is very sloppily written.

According to The Daily Beast, “A 2007 study by the American Association of University Women found that college-educated women earn only 80 percent as much as similarly educated men a year after graduation.”

After ten years in the workforce, the gap opened to 12 percent.

Wait. What? A 20 perccent gap opened to a 12 percent gap? How does that work? Having nothing better to do with my time, I decided to look up the referenced 2007 study. (And, people? This is 2012 and you’re writing for the web. You can link to studies for your readers. Don’t make them do their own Googling.)

Here’s the original study: Behind the Pay Gap (2007). I started with the Executive Summary. First page, second paragraph:

One year out of college, women working full time earn only 80 percent as much as their male colleagues earn. Ten years after graduation, women fall farther behind, earning only 69 percent as much as men earn.

Oh. So, the 80 percent pay gap increases 11 points, to a 69% pay gap. Now, to be fair to David Ferguson, he’s pretty much re-writing a story from the Daily Beast. And this goofily worded section is in the original story. But quoting another story is no execuse for bad writing or for failing to correct the bad writing, for your own readers.

Now, about the pay gap itself. Reading this story and the Daily Beast story, one gets the impression that their is an immense pay gap between men and women. If you read the 2007 study closely though, the pay gap isn’t nearly as immense.

One year out of college, women working full time earn only 80 percent as much as their male colleagues earn. Ten years after graduation, women fall farther behind, earning only 69 percent as much as men earn.

… The only way to discover discrimination is to eliminate the other possible explanations. In this analysis the portion of the pay gap that remains unexplained after all other factors are taken into account is 5 percent one year after graduation and 12 percent 10 years after graduation.

After controlling for variables other than sexism, the pay gap after 1 year is 5% and the pay gap after 10 years is 12%. Or is it? You could read “portion .. that remains is 5%” as meaning 5% of the 20%, which is 1%. Similarly, 12% of 31% is 3.7%.

To figure out which it is, I checked the Full Report, from the study.

That is, after controlling for all the factors known to affect earnings, college-educated women earn about 5 percent less than college-educated men earn. Thus, while discrimination cannot be measured directly, it is reasonable to assume that this pay gap is the product of gender discrimination.

Okay. I think the Executive Summary isn’t worded as clearly as I would like, but it is saying that 5% of the pay gap can’t be explained by their regression analysis against other variables. So, the unexplained pay gap after 10 years is 12%. That’s a lot better than the 20% and 31% mentioned in the Daily Beast article, but it’s still not great.

But I had one more question: did the study account for the fact that men, generally speaking, negotitate more aggressively for starting pay and raises than women do?

I found this in the “What Can We Do About the Pay Gap?” section of the study? The fact that this in the potential solutions section strongly suggests, to me, that the authors didn’t control for it, in their regression analysis.

Further magnifying these gender differences, women expect less and negotiate less pay for themselves than do men. Researchers have found that women expect less, see the world as having fewer negotiable opportunities, and see themselves as acting for what they care about as opposed to acting for pay. These learned behaviors and expectations (which may be based on experiences) tend to minimize women’s pay (Babcock & Laschever, 2003).

Individual differences in negotiating skills may lead to pay variation among workers with similar skill sets. Employers have a fair amount of discretion in setting wages as long as they pay at least the minimum wage and do not discriminate based on gender, race, ethnicity, age, or other protected group. One study by Babcock and Laschever (2003) found that starting salaries for male students graduating from Carnegie Mellon University with master’s degrees were about 7 percent higher (almost $4,000) than the starting salaries for similarly qualified women. Babcock and Laschever argue that this gap in part reflects differences in men’s and women’s willingness to negotiate. It may also reflect women’s perceptions about the labor market, expectations about the wages they’ll receive, and willingness to take a lower-wage job (Orazem, Werbel, & McElroy, 2003).

On a related front, several economic experiments have demonstrated that regardless of their actual work performance in a competitive setting and their beliefs about their performance, more women than men choose noncompetitive payment schemes over tournament (where a winner gets a prize and a loser gets nothing) or competition rates of payment for a task (Niederle & Vesterlund, 2005).

Indeed, when I checked “Figure 21. Key Variables Used in Regression Analysis, by Category”, negotiating ability or style isn’t listed as a variable. Given that, I’m perfectly willing to conceed that a 5% pay gap exists but I’m chalking it up to negotiating strategy rather than to overt discrimination. It’s also not surprising that after 10 years of negotiating less aggressively, a 5% gap could grow to a 12% gap. I don’t think you need to bring in the specter of active discrimination to explain that gap.

Secondly, Senator Grothman seems to say that the existing law was unfair because it would penalize employers who paid men and women differently on the basis of experience.

“Take a hypothetical husband and wife who are both lawyers,” he says. “But the husband is working 50 or 60 hours a week, going all out, making 200 grand a year. The woman takes time off, raises kids, is not go go go. Now they’re 50 years old. The husband is making 200 grand a year, the woman is making 40 grand a year. It wasn’t discrimination. There was a different sense of urgency in each person.”

The way I read the law, that actually isn’t the case.

Your employer may offer up a number of reasons for the differences in pay. It may point to a seniority system, a merit system, a system based on quality or quantity of work, or any other factor that accounts for the difference other than sex. Your employer could also try to argue that the jobs simply aren’t substantially similar. Ultimately, however, if your employer responds to the allegations with a valid nondiscriminatory reason for the difference in pay, you must show that the reasons given are pretextual, and that the true reason for the unequal compensation is based on your sex.

Unequal pay for unequal experience does seem to be a valid exception, under state law.

Third, if you’ll pardon my wordiness, I’ll proceed to the actual effect of the bill that Governor Walker signed last week. I had to go to an Illinois lawyer to find a good description. That this description isn’t in either The Raw Story’s article or the Daily Beast’s article just confirms my impression that both are sloppily written.

Here’s how the bills have been described.

According to Mr. May, the Assembly has recently passed two bills: the first “repeals an employee’s right to recover compensatory and punitive damages when they have proven in court that they were victims of workplace discrimination or harassment;” the second, according to Mr. May is a bill that repeals Wisconsin’s Equal Pay Act, “which guarantees women the same pay as men for doing the same work.”

Is that what happened?

What Mr. May does not mention is that compensatory and punitive damages were not available under the Wisconsin Fair Employment Act until 2009! So the Wisconsin Republicans’ bill would simply undo what the lawmakers perceive as a recent mistake—not some venerable feature of Wisconsin law.

Well, okay, but won’t victims of employment discrimination be left without a remedy? No, almost never. The Wisconsin Fair Employment Act is largely duplicative of the federal anti-discrimination laws, all of which allow the full panoply of damages. Indeed, one of the business lobby’s chief complaints is that the WFEA creates an unnecessary layer of administrative hearings, which of course cost money (and therefore increase the costs and risks of hiring employees, at the margins).

This is all a big misunderstanding. There is no such thing as the Equal Pay Act in Wisconsin. Instead, the 2009 Act that created the right to get compensatory and punitive damages under the WFEA—the Act discussed above that Republicans are now trying to appeal—was entitled the “Equal Pay Enforcement Act.” This is confusing because there is a federal law called the “Equal Pay Act,” which requires “equal pay for equal time.” But Wisconsin’s Equal Pay Enforcement Act actually has nothing to to with “equal pay for equal time”—it just provides for compensatory and punitive damages for the substantive laws passed previously. Since there is no separate Wisconsin Equal Pay Act, there is no separate bill to repeal it.

Wisconsin Law has a two-step process, when alleging an equal-pay violation.

Currently, an employee may file a complaint of workplace discrimination with Wisconsin’s Department of Workforce Development (DWD). The DWD has the power to investigate the claim, hold hearings and award an employee back pay, reinstatement, costs and attorneys’ fees upon a finding that the employer engaged in discrimination. Repealing the WFEA in the manner proposed will not take away any of these administrative proceedings or remedies. Instead, under current law, after an employee has already proved discrimination once at a hearing in the DWD, she has to then go to state court and again prove discrimination in order to recover compensatory and punitive damages. It is the right to go to state court to recover these damages that is in danger of being repealed.

Now that the “right to go to state court” has been repealed, employees will have to follow the federal process, to receive compensatory and punitive damages.

First, federal law mandates that, just like in Wisconsin, employees go through an administrative process at the Equal Employment Opportunity Commission (EEOC) before bringing suit. After that administrative procedure, the employee then must bring a lawsuit in federal court to recover any compensation. Thus, the federal system also requires both an administrative and judicial step to resolve these claims.

U.S. sanctions, set out in Section 1245 of the National Defense Authorisation Act for Fiscal 2012 (HR 1540), apply only if the president determines “the price and supply of petroleum and petroleum products produced in countries other than Iran is sufficient to permit purchasers . . . to reduce significantly in volume their purchases from Iran”.

Sanctions do not apply if the president determines an importer has “significantly reduced” its volume of crude purchases from Iran, and the president can waive them altogether if it is in the national interest.

The law mandates experts at the Energy Information Administration (EIA), in conjunction with the departments of Treasury and State and the head of the intelligence community, to review the availability of alternative supplies every 60 days. [Emphasis added.]

So, what went wrong? Here’s Sheldon Richman, with two of my favorite economics quotes.

The “experts” don’t know what they’re doing. They may think they do. They surely want us to think that. But they’ve got a problem: The matter they are grappling with does not permit the kind of knowledge they would need to design a plan calibrated to produce the results they seek. They’re up to their eyebrows in data, but what they need more than data they haven’t got, and there’s no way to get it.

The Problem Is People

Rube Goldberg had it easy. He had only to arrange a series of inanimate objects and an occasional parrot to create his problem-solving devices. The expert who tries to calibrate sanctions to harm only Iran, but not oil consumers, have to deal with people. He seems, Adam Smith wrote in The Theory of Moral Sentiments,

to imagine that he can arrange the different members of a great society with as much ease as the hand arranges the different pieces upon a chess-board. He does not consider that the pieces upon the chess-board have no other principle of motion besides that which the hand impresses upon them; but that, in the great chess-board of human society, every single piece has a principle of motion of its own, altogether different from that which the legislature might chose to impress upon it.

F. A. Hayek had something similar in mind in his 1974 Nobel lecture, [“The Pretence of Knowledge”][4]: “[I]n the study of such complex phenomena as the market, which depend on the actions of many individuals, all the circumstances which will determine the outcome of a process . . . will hardly ever be fully known or measurable.”

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A large shadow banking system had developed without meaningful regulation, using trillions of dollars in short-term debt to fund inherently risky financial activity. The derivatives markets grew to more than $600 trillion, with little transparency or oversight. Household debt rose to an alarming 130% of income, with a huge portion of those loans originated with little to no supervision and poor consumer protections.

A “shadow banking system had developed“? Just like that? All by itself? I think there might be some interesting history about why various people started trading and banking outside of the normal system. What incentives did they have to do that? What was wrong with the normal system?

Why were these shadow bankers so interested in inherently risky financial activity? Did they feel constrained by existing restrictions and regulations? Did they feel driven by some kind of requirements to see out excessive risk?

Why did the derivatives market grow so large? What benefit did bankers see in trading so massively in derivatives? Was there a reason that they couldn’t trade more directly?

What did households choose to grow their debt so dramatically? What factors made them feel that large levels of debt were both safe and desirable?

These are just a few of the potential questions that people might ask, if Geithner had used the active voice. It’s a good thing then that he used the passive voice to defend the administration’s priorities.

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Sensing a theme? Wealth is merely the ability to get things that we want. Since most of us are not independently wealthy, we have to work to create things that other people want in order to get what we want. The most common way to do this since the dawn of the industrial revolution has been to work for someone who needs human labor to accomplish some end–an end that is valued by consumers.

… The point is, our goal should never be to “create jobs”. Our goal should be to enable people to contribute something valued by other people. The value is the point, not the work. If someone finds a way to provide value to hundreds of millions of people and it requires no more effort from them than batting their eyelashes, that would be a win.

… the forward march of technology has made it very difficult for people who have traditionally had low-skill or even middle-skill occupations to contribute value.

Words have meaning, so let’s sure we use the right ones. We need to find more ways for more low-skill and medium-skill workers to contribute value. We don’t just need jobs.

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One former executive described how the company relied upon a Chinese factory to revamp iPhone manufacturing just weeks before the device was due on shelves. Apple had redesigned the iPhone’s screen at the last minute, forcing an assembly line overhaul. … Within 96 hours, the plant was producing over 10,000 iPhones a day.

Can you imagine a union dominated, U.S. manufacturing plant turning around assembly line processes anywhere near that quickly?

Though components differ between versions, all iPhones contain hundreds of parts, an estimated 90 percent of which are manufactured abroad. Advanced semiconductors have come from Germany and Taiwan, memory from Korea and Japan, display panels and circuitry from Korea and Taiwan, chipsets from Europe and rare metals from Africa and Asia. And all of it is put together in China.

Simply put, China is a lot closer to the raw materials than America is. In many cases, it makes a lot of sense to keep the manufacturing plant close to the supply chain.

“The entire supply chain is in China now,” said another former high-ranking Apple executive. “You need a thousand rubber gaskets? That’s the factory next door. You need a million screws? That factory is a block away. You need that screw made a little bit different? It will take three hours.”

How about quickly, nearly instantaneously, finding new employees to ramp up production?

“[Foxconn] could hire 3,000 people overnight,” said Jennifer Rigoni, who was Apple’s worldwide supply demand manager until 2010, but declined to discuss specifics of her work. “What U.S. plant can find 3,000 people overnight and convince them to live in dorms?”

… Another critical advantage for Apple was that China provided engineers at a scale the United States could not match. Apple’s executives had estimated that about 8,700 industrial engineers were needed to oversee and guide the 200,000 assembly-line workers eventually involved in manufacturing iPhones. The company’s analysts had forecast it would take as long as nine months to find that many qualified engineers in the United States.

In China, it took 15 days.

… In particular, companies say they need engineers with more than high school, but not necessarily a bachelor’s degree. Americans at that skill level are hard to find, executives contend. “They’re good jobs, but the country doesn’t have enough to feed the demand,” Mr. Schmidt said.

There are many, many reasons why manufacturing jobs are being created in China and not in the U.S. It’s nowhere near as simple as just calling it “greed” and condemning U.S. employers. In a highly dynamic, constantly changing world, is the U.S. producing skilled employees (at all skill levels!) who are willing to quickly change what they do and how they do it?

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