Truck and Barter

Wage Woes of DC Baseball

In Working for Peanuts Jeff Horwitz interviewed one Elijah Scrivner who cleaned up four times after the Nationals played in RFK stadium.

Mr. Scrivner and 200 others agreed to work for $7 an hour, but it turns out Federal law requires that "janitors" at Federal and District government agencies -- and their contractors -- must be paid at least $12.71 an hour ($10.12 plus $2.59 for health and welfare). And RFK is overseen by the DC Sports and Entertainment Commission.

In other words: Doh!

Nobody is sure why the new contractors weren't informed of the legal requirement after the old contractor was fired, though it might have something to do with incompetence.

What's really amusing is the response by a subcontractor after being told about the Federal Minimum of $12.71:

Another Knight-hired subcontractor, Maryland-based Paj Business Staffing, also concedes that its employees were paid far less than prevailing wage. "We have told all of our people they have an additional $5.71 [an hour] coming to them," says Phyllis Stevenson-Jenkins, Paj's owner. She would have loved to pay that rate initially, she says, because "It's a win-win situation for us—we can bill higher." She says that Knight allowed her to bill only $10 an hour for each worker—"way, way under [SCA] wage determination."

What a great way to set up a compensation system, boys!

But Mr. Scrivner says that this wage is too high!

Besides, he adds, the newly higher wages are more appropriate for the job. "People should feel like they're getting a little more than minimum wage out of the work," he says. "The tasks we had to perform, picking up other people's trash—that was worth at least eight or nine."

Let's recap:

1) Market clearing wages are at $5-$7
2) Feel-good efficiency wages are around $8-$9
3) Government regulations require $12.71 an hour

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It might be helpful to note that the Washington, DC unemployment rate hovers around 7.5%-8%.

Social Security - 1

I want one, and only one, modification to the Social Security "system".

I want out. The rest of you can do whatever you want with it.

Please don't laugh (or cry). This post is not about sensible policy; it is about being tied to a system that makes me worse off. It's a vain plea to all of you who support SS: please let me go my own way.

I know that my release from SS is not going to happen; too many of my fellow Americans -- current beneficiaries, politicians, and those ideologically committed to national collectivism -- really want me to stay.

For several years, I have been a fine source of free money; I know I'll be an even better source with a Ph.D. But you have no right to determine which, if any, elderly, widowed, orhpaned, or disabled person deserves my financial support.

The system, as it is currently set up, doesn't care about my welfare, because if it did, I would already be estranged from it. In this world, here and now, I would prefer to support my Russian mother-in-law, somebody who will never receive a dime from SS, and a few other Russian relatives who live in far worse conditions than many on the SS dole.

You Americans don't care about my mother-in-law, but I do. Your laws tell me that through SS, I must support my own mother, who lives in a McMansion. I must also support my mother's boyfriend, who just bought a Lexus. To hell with you. My world, my preferences, my horizon extend beyond political borders.

How many others are there, immigrants and nonimmigrants alike, who struggle to send remittances to loved-ones outside the U.S., and are forced to support people in the U.S. who are much better off?

I would have liked to have opted out when I graduated college, but this was not an option. As a result, I would have owned a much larger portolio of assets that I would have sold to support my family while I earned a Ph.D. in economics. Instead I did save some, but the sum I "gave" in social security taxes over the term I worked would have made life a lot easier.

Do I sound crass to you? Well, maybe that's because you haven't looked at SS from my perspective. So, here's a crash course on my views of the SS program: I've worked and have given money to the government, which has spent it on a potpurri of beneficiaries (some "needier" than others), and through a gimmicky transfer of funds cooked up to look like investment, the general Federal budget. The benefits of this income redistribution are real, and I recognize the beneficiaries were former "donors" to your involuntary retirement program, but this investment of funds into an asset trust fund is a pretense.

From the SS perspective, that transfer is a huge fund of assets, short and long-term interest-bearing U.S. Government securities. But from the view of the rest of the government, those securities are debt. From the view of the taxpayer, the assets and debt cancel, and the transfer of funds is simply an accounting entry indicating accrued spending--the amount of money taken from SS taxes and spent on non-SS activities.

I know that the SS deduction is an income tax with a funny label, that's all. If there were no SS taxes to pay for SS benefits, the SSA would have to take money from the federal government. Instead, the federal government takes the SS tax surplus.

Notice I use the word "take" -- some would use the loaded term "raid" -- not the word "borrow". The federal government may use Treasury Bonds (a debt instrument) to complete these transactions legally, and those T-Bonds may accrue interest, but the government is no more borrowing from itself than my pants are when I remove my wallet from my left pocket and put it into my right.

The government spends every damn dime you and I send in through SS taxes, much of it on non-SS matters. Granted some of the government's expenditures on non-SS matters are investments that will yield returns. In 2003, the OASI "Trust Fund" increased its "assets" by $138 billion, all of which was "invested" in government securities. How much of that $138billion was actually invested, and not spent on paper clips or bureaucracy? I don't know, and there's nothing I can do about it. The SSA promises to give me benefits when I'm old or disabled, but I need them now. When I'm old, I'll have my own nestegg.

Thanks for nothing, folks.

I think it's clear that I feel absolutely no larger committment whatsoever to this program. In fact, I'm owed an apology by the government for being shady and dishonest with me. All those pathetic statements from the SS telling me how much I've put into the system... and what I'm "entitled" to later on. I know what this means, and it is not a philosophically principled, glorious future. Since you insist on keeping me in the system involuntarily, somewhere down the line, I'll be collecting benefits, while some other schmuck will be supporting me. Whatever. This wage slavery is patently dishonest, and I want no part of it. I don't like it, and want out. If the government can pretend that there really is a separate Social Security system, I can want out of that system.

But I know moral pleas won't convince you to free me. So what would you say to the following exchange?

I relinquish your "obligation" to pay me in the future; in exchange, I give you no more "contributions". You may keep all the money I've already "given" you.

This modest proposal is extraordinarily fair. You've taken my money; I don't want any back. Sounds good, right? In fact, I'll do one better. I'll work for X more years, giving you all the SS contributions you currently require, and then I'll relinquish your obligations, if you'll relinquish mine! More free money for you! No strings attached!

You don't want it? Why not? How about if I get my mother to let you relinquish her benefits too? What can I offer you guys to let me out of the system today?

This dickering process is similar in principle (though definitely not extent) to how most nations freed slaves: compensating slave-owners. Hamilton did it in New York, 80 years before the rest of the country, and Lincoln wanted to end the civil war by compensating slave-owners around $400 a head. This what I would like to do--emancipate myself from your system by buying my way out.

Just think of it in those terms for one minute.

UPDATE 1-21-05: I forgot to mention that when a slave was freed, so were his decendants. I guess that stream of future contributions would slightly increase my net present value to the SS system, and raise the current spot price of liberation from SS.

Free Wi-Fi in Alexandria, VA Libary

My post about the disturbance caused by an unexpected wireless network in my local library was joyfully mocked on several techie sites. Well, you may continue your derision; the gods did it again.

Last Saturday, the Alexandria Beatley Central Library began offering free Wi-Fi to all comers--residents and nonresidents. Watch out Panera!

Since the library is a government enterprise, there was no attempt to profit from the wi-fi network. There was no advertising of this achievement--not even a small sign--, and no hip college student selling coffee swill at a stand. Nobody at the library could tell me anything sensible about the network. Even the ordinarily sharp ladies at the reference desk had just received a typed memo informing them. Note that they mentioned that users of the wi-fi network must accept the library internet use policy, even though no message or login screen prompts them to accept it.

UPDATE: There are signs up now. It's a beta test...

Token Hoarding in St. Petersburg, Russia

Just received word from our correspondent in St. Petersburg, Russia (my mother-in-law), that on January 1st the local authorities will raise subway fares.

What's interesting about this situation is that the authorities do NOT change the tokens when raising fares; of course, that would cost too much money.

But, this is Russia, so those costs don't disappear; they're passed onto the Russian people. As expected, those who live in Piter have been fighting back--not by mass protest--but by buying up tokens at a rate so furious rate that there's now a "shortage".

This hoarding is so effective and widespread that there's now a 20-30 minute wait in line just to purchase a token.

Sorry, I couldn't find a link.

Committee Quote of the Day

It has been said that a camel is a horse designed by a committee. The public sector seems obsessed with committee decision making, even the simplest of things have to be decided by the expert committee. Today’s quote of the day is from the British economist John Kay who cautions us against been addicted to committees:

Most decisions are wrong. Most experiments fail. It is tempting to believe that if we entrusted the future of our companies, our industries, our countries, to the right people they would lead us unerring to the promised land. Such hopes are always disappointed. Most of Thomas Edison’s inventions did not work, Ford, Morris and Mao ended their careers as sad, even risible figures. Bill Gates missed the significance of the Internet, Mrs Thatcher introduced the poll tax, and Napoleon died in exile on St Helena. Even extraordinarily talented people make big mistakes.

But because most decisions are wrong and most experiments fail, it is tempting to believe that we could manage businesses and states much better if only we assembled sufficient information and clever people, and debated the issues at length. This is how decision making is supposed to be in the public sector and in many large organizations.

(The Truth About Markets, p.105).

Disaster Relief: Type I & Type II Errors

Statisticians take note; The New York Times reports that the objective of government disaster relief is to minimize type I error (rejecting valid welfare recipients) at the expense of type II error (not rejecting invalid welfare recipients):

In the spring of 2002, as the weather warmed up for the first time since the 9/11 attack, federal and state officials announced a plan to reimburse New Yorkers who replaced air-conditioners damaged by dust and debris from the collapse of the World Trade Center...

It was an honor system of sorts, one that relied on the belief that people shaken by a national tragedy would not turn around and use it for personal gain - in this case, a free air-conditioner as warm weather approached.

But a federal audit released yesterday suggests that that is exactly what happened.

About 62 percent of the people who were reimbursed for air-quality products were not eligible, based on a sample of 4,435 applicants. Given that as many as 225,000 people asked for money back, the finding could mean that roughly 140,000 people used the program improperly...

Some people who applied for - and received - money were miles from ground zero. And a program that had been budgeted for $15 million ballooned to more than $45 million.

Of course we expect fraud, but fraud was permitted because officials feared denying anyone who could legitimately get an air conditioner welfare payment:

The audit also said there was no evidence that anyone who was eligible had been denied air-quality equipment.

Of course there would have been political hell to pay if a type I error was comitted, and somebody died because the government did not give them compensation for an air conditioner damaged on 9/11.

For the Love of Property

Chinese peasants fight corrupt, land-grabbing, police-wielding, Commies:

[R]esistance to land grabs in China's 34 provinces has sometimes veered into violence, raising the specter of popular rural unrest that has haunted China's rulers throughout history.

Farmers pushed from their land on an island in the Pearl River in southern China have repeatedly clashed with Guangzhou police in recent months. The New York-based organization Human Rights in China reported Sept. 1 that 15 people were injured in a clash Aug. 1 at a factory in the Fuzhou suburb of Cangshan between police and protesters who said their property had been illegally seized.

"The situation of peasants being deprived of their land is very serious in China," said Li Baiguang, director of the Beijing Qimin Research Center. Li, who has studied land seizures in Fujian and other rural provinces, added, "If the interests of the peasants cannot be properly protected and the conflicts cannot be settled, Chinese society might suffer from turbulence."

It is an uneven battle. Party and government officials at the village, county, township and provincial levels use their power to exploit provisions in Chinese law that allow land confiscation in the name of the public interest. They retain a monopoly on deciding the public interest and the compensation.

The China Daily newspaper cited official estimates that nearly 10,000 square miles of farmland were transformed by development in 2003. Rice paddies became factories. Cabbage patches became apartment compounds. Wheat fields became golf courses.

Government Gets Out of the Way (A Little)

Note that governments can do sensible things. In the wake of the devastation wrought by serial hurricaines, the executive government of Florida is relaxing government licensing requirements for specialty building contractors:

Spearheaded by the Florida Home Builders Association, the executive order temporarily alters contractor licensing regulations in order to keep the state's home-building industry on track. The goal, says Edie Ousley, FHBA's director of public affairs, is to provide qualified labor and quality materials to begin the rebuilding process in regions hit hard by the hurricanes.

"We're thankful that the governor issued this order allowing out-of-state, licensed contractors to help with re-roofing homes in Florida," says Ousley. She adds that the FHBA will be "monitoring the rebuilding efforts very closely" over the next few months.

In other words, this requires local governments to get out of the way of contractors licensed elsewhere. Can all of us (who are not locally-licensed Fla. contractors!) agree that this is good policy? Should it be extended beyond the emergency period?

The full text of the executive order is here.

Iraqi Oil & Indonesian Planning

While Alex Tabarrok notes this Foreign Affairs article ($) on how to deal with Iraqi oil, those on the ground are getting exports back online:

Prices fell this week after Iraq restored full crude exports of two million barrels a day from its southern Basra fields and restarted deliveries at 450,000 bpd, half capacity, from its northern Kirkuk fields for the first time since May.

But the high price of oil caught some government planners by surprise. Hence our next Statsmerkwürdigkeiten award goes to the government of Indonesia, which continues its incredibly distorting "buy-high, sell-low" energy subsidy:

The steep oil price hike since May -- to as high as US$50 per barrel now -- has finally forced the Indonesian government to revise upward from $22 to $36 per barrel the average oil price used to estimate oil tax revenues and the cost of fuel for the current fiscal year....

The government... has decided to abandon its sensible, fuel-economic, 2002 policy to float domestic fuel prices on market quotations in Singapore to encourage efficient use, slash subsidies, target price support only to poor consumers (kerosene for household use) and, most importantly, minimize smuggling overseas. Consequently, fuel subsidies for 2004 will balloon to more than Rp 63 trillion ($7.08 billion), much more than total central government spending on its personnel (civil servants, the police and the military).

Since the government maintains domestic fuel prices way below actual production costs -- applying a blanket subsidy on all kinds of fuel -- the bulk of the subsidies may end up benefiting mostly private car owners (middle and top-income consumers). Most devastatingly, fuel smugglers will receive even stronger incentives, as their profit margins will skyrocket.

True, part of the subsidy will go on kerosene, which is widely used by poor people. But corruption will continue to divert quite a significant portion of this cheap fuel to industrial users and smugglers.

I understand the desire to help the (very truly) poor by keeping kerosene prices affordable, and clearly the result of this policy was highly unexpected. But that's the point that has to be noticed; this example demonstrates that inflexible policies that require a static world (or that require prices to remain within an historical corridor), can fail miserably when price-flexible dyamic markets perform their economic function... Simply put, the Indonesian government thought it could spend freely on subsidies, and didn't see this coming:

Until last year (when Indonesia was still a net oil exporter), any increase in international crude oil prices would give the government net additional revenues. However, starting this year, as the country is already a net oil importer of about 36,000 barrels a day, an oil-price hike immediately cuts into central government income as additional revenues are much less than additional spending on subsidies.

Ouch.

Statsmerkwürdigkeiten: Master Plans of Disequilibrium

I hereby initiate a new series of posts on T&B entitled "Statsmerkwürdigkeiten", which is German for "the remarkable things of the state". The word has an origin in Gottfried Achenwall's lectures in the 18th century, although we use it with an impish sarcasm. (I found it in a translation of Meitzen's History, Theory, and Technique of Statistics). See page 5 of this document for orginial German context.

Our first example of Statsmerkwürdigkeiten is this Washington Post piece, demonstrating that there is no invisible hand coordinating the master development plans set by local governments.

Ask youself what happens if the big players in a tight network of local governments use their zoning power to plan for ~2.6 jobs for every home in the community, but people prefer to live in densities of ~1.5 jobs per home:

Attracting workers -- but not the homes for all of them to live in -- is not just official policy in Clarksburg and Montgomery County; it has increasingly become the practice across the region. Local governments believe this makes financial sense because workplaces pay more taxes and use fewer government services than homeowners do. And governments maintain this imbalance through zoning and other development controls.

But by creating housing shortages, the policies push developers, home buyers and renters farther and farther away to find available land and more reasonably priced houses.

This migration, in turn, produces longer commutes to work, more road congestion and the destruction of remote natural habitats, planners say. The extra auto travel contributes to other troubles, including air pollution and the "dead zones" in the Chesapeake Bay. And, most of all, sprawl.

"Many local governments haven't controlled growth, unfortunately -- they've deflected it," said Gerrit Knaap, a planning professor and the director of the National Center for Smart Growth Research and Education at the University of Maryland.

Developers are often blamed for sprawl, and as self-interested businesspeople, they often lobby for road and home-building projects in outlying rural areas. But to a large extent, they are only catering to the housing demand in the Washington region within the constraints placed on them by local governments.

"Developers do what makes them money -- they build what they find to be profitable," Knaap said. "But what they find to be profitable is determined by consumer preferences and public policy."

Government officials find that they're punishing people who never live in their area, since they buy their homes elsewhere:

Several jurisdictions in the Washington area have pursued a strategy of attracting more workplaces than homes, but Montgomery County under County Executive Douglas M. Duncan (D) made it an explicit goal. Duncan proposed -- and the County Council approved in June -- a policy calling for faster job growth than housing growth.

New residents generally cost the county money. The average household in the county pays about $6,500 in property, income and other taxes to the county. But the county spends about $8,500 a year educating the average school student, not including state and federal aid.

"This policy is good for the tax base," Duncan said.

Or, as a Montgomery County booklet puts it: Creating workplaces faster than homes is "the economic development strategy yielding the greatest long-term net fiscal benefits."

County policy aims for employment growth of 2 percent and household growth of 1.4 percent annually. Though it won official approval only this summer, it appears to have been in practice for more than a decade.

Good for the tax base or good to get him re-elected?