Monthly Archives: March 2014

Overtime, rooted in the LOL fallacy

If you can stomach a brazenly left-biased economics news article from the Washington Post, check out this coverage of the overtime trial balloon that the White House is floating:

White House officials declined to describe the proposal in detail, suggesting only that they were contemplating a change in the salary threshold that determines whether an employee receives overtime pay for working more than 40 hours a week.

These authors tend to describe liberal points as things “economists” say, but that counter arguments are things “critics” say.  Nice skew!  Examples: “[E]conomists say federal rules … have failed to keep pace with the growing cost of goods and services” and “Economists argue that the declining value of the minimum wage has also contributed to lagging wages.” Um, no they don’t.  Liberal economists might make those arguments, but the majority don’t say such things.

Fact is that this overtime effort is deeply flawed according to mainstream economics. It is based in a theory of human labor as a muscle commodity, which was relevant in, economists say, 1861.  This notion that raising the overtime threshold will create jobs is so wrong that it has a nickname among economists.  It’s called the “Lump of Labor Fallacy” and even has a Wikipedia entry. Look it up! and for that matter, LOL also has a 2003 essay in the New York Times dedicated to trashing partisans who advocated restricting work hours as a policy to boost employment:

Economists call it the ”lump of labor fallacy.” It’s the idea that there is a fixed amount of work to be done in the world, so any increase in the amount each worker can produce reduces the number of available jobs. (A famous example: those dire warnings in the 1950’s that automation would lead to mass unemployment.) As the derisive name suggests, it’s an idea economists view with contempt, yet the fallacy makes a comeback whenever the economy is sluggish.

Say who?  Yeah, um, that was Paul Krugman.



Politics Trumps Policy: Ezekiel Emanuel

This  essay by Ezekiel Emanuel Obama, an administration health insider who helped craft the ACA, explains how corrupting politics can be:

Economists—liberal and conservative alike—overwhelmingly denounce the tax exclusion. It drives costs higher while keeping wages down, it is regressive, and it is a major drag on the federal budget—lowering revenue by a whopping $250 billion a year.

During the 2008 presidential campaign, Senator John McCain proposed eliminating the exclusion and replacing it with a $5,000 tax credit to help families buy health insurance. The Obama campaign ran more than $100 million worth of ads pounding McCain, accusing the GOP nominee of “taxing health benefits for the first time ever.”

Once Obama was in office, his advisers split on the issue. The economists wanted to limit the exclusion, but the political team didn’t want to touch it. David Axelrod, the president’s political guru, even showed us a montage of Obama’s campaign commercials to remind the economic team of his stated position.

Emanuel (yes, Rahm’s brother) says that Obama ultimately did the right thing by adding a tax on Cadillac plans that will begin, wait for it, in 2018. Not only is the timing of the reform questionable, but it is delusional to think of this as real reform.

The reality is that Obama was devastating against John McCain using a very insincere, populist attack when it was McCain who was offering up a good policy proposal, a proposal that Emanuel himself calls a good, consensus, bipartisan idea. Politics won. The nation lost. End of story.

UPDATE: I spelled Emanuel’s name incorrectly in the original title. Now corrected.  Thanks to a reader for pointing this out.