On the Gender Wage Gap

Today is “Equal Pay Day”, which is the day on which the median earnings of female workers starting from the first day of the previous year (January 1, 2013 in this case) to today equals the median earnings of male workers for only the previous year. The date is based on Census Bureau statistics which show that the median earnings of full-time female workers is 77% of the median earnings of full-time male workers. The gender pay gap is allegedly caused by sexism, but in order to make such a claim the Census Bureau’s gender wage gap must be completely misinterpreted.

Confounding Factors

In claiming that the gender pay gap is proof of sexism, feminists and other Equal Pay Day promoters assume that women with equal qualifications doing equal work as men are paid approximately 23% less in the median. The putative cause of this sexist behavior is, unsurprisingly, The Patriarchy — a “good ol’ boys club” of higher level managers (mostly male) paying and promoting younger men preferentially over female workers. The problem is that feminists fail to control for confounding factors which contribute to a worker’s pay. Such factors include work experience, education, hours worked, and job hazards — generally, an increase in these factors results in higher pay for a particular job. In order to claim that the gender wage gap is due to sexism, leftists and feminists falsely assume that a woman at the median (who by definition earns more than half of all other women and less than the other half of all other women) has equal qualifications and does equal work as a man at the median.

It is not difficult to understand how this assumption is plainly false. Indeed, the leftist/feminist scapegoat for the gender wage gap — a “good ol’ boys club” — assumes that men generally have more experience and dominate higher-level managing jobs, which unsurprisingly pay higher wages. Given the fact that women have only started matching the number of male college graduates and workers fairly recently, it is entirely unsurprising and expected that women at the median have less experience, education, etc. than men at the median and therefore deserve lower pay. There are many additional factors which result in higher pay for men — men tend to work more dangerous jobs (the fatal occupational injury rate for men was nearly ten times the rate for women in 2009), men tend to work in more difficult and higher paying occupations and specializations (e.g. STEM jobs for men vs. social work for women, or surgical specializations for men vs. pediatrician specializations for women), men tend to work in less desirable locations, men tend to take jobs which require overtime or work on weekends (so that men work more hours on average than women), etc. The evidence that these confounding factors contribute to most of the gender pay gap is so compelling that even some feminists like Hanna Rosin admit that it is a lie to say that the gender pay gap is due mostly or entirely to sexism. Unfortunately, there are very few feminists who admit that the gender pay gap is not due to sexism — most feminists use the 77% statistic and blame it all on sexism.

Re-framing the gender wage gap

Although leftists and feminists like to frame the gender wage gap as an example of enduring sexism against women getting their “fair share” of wages, it is entirely possible to completely re-frame the gap as example of women not working their “fair share”. For example, instead of saying that women are only paid 77% of what men are paid (at the median) one could just as easily remark that women are only doing 77% of what men are doing (at the median). Instead of complaining that it takes until April of the following year for women to be paid as much as men were paid in just the previous year, one could just as easily say that it takes until April of the following year for women to finally complete as much work as men did in only the previous year. Instead of asking why women are paid less one could ask why women generally don’t work as much, don’t work in as difficult jobs, choose less difficult jobs and specializations, etc. Re-framing the gender pay gap (gender work gap?) in such a way is just as valid as the leftist/feminist interpretation, but it suggests that women have it easier than men rather than harder as a result of unfair discrimination. Moreover, the corrective action suggested by such an interpretation is for women to work harder and longer, choose more difficult and dangerous occupations, etc. — rather than government action to correct alleged sexism against women.

Ultimately both interpretations are flawed because they are based on the median earnings of men vs. women, but the woman who has median earnings for women is not the same as the man who has median earnings for men — statistically the woman at the median works fewer hours, has a less difficult and dangerous job, etc. than the man at the median. In other words, both interpretations fail to control for confounding factors which contribute to an individual’s pay. Unfortunately, Census Bureau statistics do not provide a way to control for such confounding factors.

Calculating the gap with statistical controls

Some studies have attempted to calculate the gender wage gap after controlling for confounding factors — i.e. calculate what the gap would be for a man vs. a woman who are otherwise identical. One example is from the American Association of University Women (AAUW), which issued a report stating that

after we controlled for all the factors included in our analysis that we found to affect earnings, college-educated women working full time earned an unexplained 7 percent less than their male peers did one year out of college (p. 21)

To control for confounding factors this study compared

men and women with the same major, who attended the same type of institution and worked the same hours in the same job in the same economic sector (p. 20)

Since this study controlled for these confounding factors, the 7% gap it found is far more accurate than the 23% gap from the Census Bureau which does not have any statistical controls. If leftists and feminists were intellectually honest they would cite a study which used statistical controls like the AAUW one rather than the Census Bureau’s uncontrolled data, but the vast majority of leftists and feminists claim a 23% gap instead. Even so, the 7% gap unexplained by the AAUW study’s confounding factors does not necessarily imply that sexism causes the gap — there may be other confounding factors not accounted for by the AAUW study which contribute to some or all of this gap (job hazards, flexibility of work schedule, etc.).

Even if bias against women does cause a gender pay gap, such a bias may not be the conventional “good ol’ boys’ club” sexism asserted by feminists. For example, another study asked male and female science faculty to evaluate hypothetical job applications which were identical in all ways except the the applicant’s name (some had a typically male name, others female); this study found that the male applicant was generally rated as more competent and offered higher pay, but also that female faculty were biased against the female applicant just as male faculty:

female faculty participants did not rate the female student as more competent…or hireable…than did male faculty. Female faculty also did not offer more mentoring…or a higher salary…to the female student than did their male colleagues.

It makes no sense to claim that the female faculty members’ bias against the female applicant is due to sexism/misogyny, and the fact that both male and female faculty were biased against the female applicant suggests that sexism/misogyny may not be the cause of the male faculty members’ bias, either. Perhaps the female faculty members’ bias was simply due to some sort of intrasexual competition with the female applicant while the male faculty members’ bias was due to sexism, but more likely the bias for both male and female faculty was due to some common cause(s).

What that potentially common cause could be is anyone’s guess. One odd study found that women tend to be absent from work more than men (due in part to menstruation!) which would result in a true economic reason to pay a man more than a woman. Perhaps the science faculty judging the otherwise identical male/female job applicants had previous experience working with both male and female workers which gave them an expectation that the male applicant would be absent less and thus deserving of higher pay. On a related note, the hypothetical female applicant in the science faculty study would be at her child-bearing age and would have a risk of going on maternity leave (to rule out this possible explanation a similar study could be conducted in which the applicant’s age was known to the reviewer to be past the female child-bearing years). Reasonable people may reach different conclusions on what is fair here: on the one hand it isn’t fair for a woman to receive lower pay on the possibility that she will become pregnant and take maternity leave, but on the other hand it isn’t fair to the employer to pay a woman on maternity leave for no work when that employer could have instead hired a man whose work would not be disrupted for months by maternity leave. Either way, biological differences in the sexes can lead to true economic reasons for employers to pay men and women differently.

Correcting the gap

Given the variety of confounding factors which have been found to contribute to the gender wage gap, it can seem an impossible task to correct it. Unless a study can find a set of confounding factors which explain all of the gender wage gap we must consider the possibility that sexism causes women to be unfairly paid less than men. On the other hand, if we assume that the gender wage gap is caused by sexism then we risk using the force of law to unfairly pay women more than men in the pursuit of correcting for sexism that does not exist.

Fortunately, eliminating the portion of the gender wage gap caused by sexism (if any such portion exists) may be as simple as allowing the free market to do its work. Economist and Nobel Laureate Milton Friedman explains:

Friedman’s main points are:

  1. If men and women do not have equal productivity then the only weapon of the less productive sex in seeking a job is to offer to work for less. By mandating that they be paid the same for less work prices them out of a job in much the same way as a minimum wage.
  2. In the absence of an equal pay law, sexist employers bear a cost by discriminating against women who are truly equally productive since they are paying men more for no additional productivity. Moreover, competitors can hire women at a lower wage and would have an advantage over the sexist employer. Over time this would either force the sexist employer out of business or force him to hire women for the same wages as men (in order to negate his competitors’ advantage and stay in business). Either way, the market would tend to eliminate the portion of the gender wage gap caused by sexism so that any remaining gap would be due to relevant economic reasons — which may already be the case today.

The lesson is that statistics which show a gender wage gap do not necessarily indicate the presence of sexism. Such statistics at a minimum must control for confounding factors, and even then it may not be possible to account for all such factors. Consequently, it may not be possible to quantify the portion of the gender wage gap that is due to sexism (if any), in which case an equal pay law will just as likely overcorrect and discriminate against men. A better way to make sure women are not unfairly discriminated against is to promote a free market which tends to punish sexist employers.

UPDATE: The Wall Street Journal and The Daily Beast have debunked the 77% myth, too.

On Video Games and Mass Shootings

Fox News recently published an article provocatively titled ‘Training simulation:’ Mass killers often share obsession with violent video games. Based on the title and the article itself, readers are presumably meant to infer that violent video games somehow cause people to commit mass murder. And, presumably, we can prevent most mass murders by getting rid of (banning?) violent video games. Mass shootings are back in the news in light of the recent Navy Yard shooting (which, incidentally, appears to have no video game connection) and multiple news organizations are talking about the connection between shootings and video games (e.g., CNN’s Opinion: Don’t link video games with mass shootings) so it’s worth a look at the possible connection between video games and mass murder.

The author of the Fox News article claims that the following multiple murderers have been linked to violent video games: Evan Ramsey (killed and wounded several with a shotgun at his Alaska high school), Eric Harris and Dylan Klebold (of Columbine fame), Anders Breivik (the Norwegian mass murderer who killed 77 thanks to “gun control”), Seung-Hui Cho (the Virginia Tech shooter), James Holmes (the Aurora, Colorado theater gunman), Jared Lee Loughner (the Arizona shooter who targeted U.S. Representative Gabby Giffords), Adam Lanza (the Connecticut shooter who murdered 20 children), Devin Moore (an Alabama teen who killed three police officers trying to escape the police after being brought in on a minor traffic violation), and Michael Carneal (a 14 year old who shot at some of his high school classmates in Kentucky). Video games are said to either “warp” the murderers’ sense of reality or help them train for murder.

As an example that video games “warp” one’s sense of reality, the article cites Evan Ramsey:

I did not understand that if I…pull out a gun and shoot you, there’s a good chance you’re not getting back up. You shoot a guy in ‘Doom’ and he gets back up. You have got to shoot the things in ‘Doom’ eight or nine times before it dies.

There are several problems with the idea that video games so thoroughly “warp” one’s sense of reality. First of all, it apparently occurred to no one that these murderers are going for an insanity defense. In a mass murder case it’s usually obvious who did it, so the murderer’s only defense is insanity: the video game made me do it! Maybe the murderer really was insane and influenced by a video game, but it seems more likely to me that the murderer is just lying in an attempt to get a reduced sentence or acquittal by reason of insanity.

Secondly, as realistic as video games are claimed to be (and actually are), there are still significant differences between video games and reality. If a video game is truly successful at warping a person’s sense of reality to the point that he thinks people who are shot just “get back up” (as Ramsey claimed above) then he would also believe all of the other unrealistic aspects of the game. For example, in most modern shooters (Call of Duty, Battlefield, etc.) knives actually take fewer hits to kill than firearms – in Battlefield you can kill an enemy with a single stab yet most firearms require multiple bullets to kill an enemy, and Call of Duty is famous for ridiculous one-hit-kills with tomahawks (even at long distances). If a person actually believed these games were real they would all be wielding knives instead of guns (not only are they apparently more deadly, but they are far easier to obtain in real life). As another example, most shooter games have medical packs to heal yourself and allies who have been shot — often returning you from the brink of death to full health after only a few seconds (and all while you continue fighting as if in perfect health). Given this knowledge, you would think that a mass murderer with a truly warped sense of reality would be carrying around a bunch of bags with medical crosses on his person to heal himself in case he is shot. Yet I know of no mass murderer who opts for knives and tomahawks instead of firearms and tries to heal himself with “med packs”, so it’s doubtful that video games can truly warp one’s sense of reality as much as claimed.

The Fox News article also provides examples of mass murderers who claimed to use video games for training. For example, the article quotes a psychiatrist:

Anders Breivik said he actually used his video game ‘Call of Duty’ to train for mass murder. He called it training simulation. And certainly there were some reports Adam Lanza saw Breivik as a rival, and he was also engaged in shooting games and even the same one.”

You may have noticed that the same game on which Anders Breivik and Adam Lanza “trained” — Call of Duty — is the one which is so realistic that you can simply lob a tomahawk up in the air and it will kill someone standing on the next street when it hits his foot. With such superb realism it’s a wonder why all the world’s military forces don’t simply use Call of Duty for all their training…

Sarcasm aside, anyone who plays “violent video games” and has also actually fired a gun in real life (such as myself) knows that the two experiences are very different. In real life there is no aim assist or on-screen crosshairs to help you hit your target, and real guns are much louder and have more recoil than any gun in a video game. In a video game you can “fire” a gun by simply holding a lightweight controller from the comfort of your couch whereas in reality you have to hold up a potentially heavy weapon and position your body correctly. Trying to “train” for shooting with a video game is about as effective as “training” to be a surgeon by playing the game ‘Operation’.

Ultimately, the article attempts to show a correlation between violent video games and mass murderers in the hope that the reader will infer that violent video games cause mass murder. This, of course, is a logical fallacy: correlation does not imply causation. Instead of correlating violent video games with mass murderers, the article could have been retitled to any of the following:

  • Mass killers often teenagers or young adults
  • Mass killers often male
  • Mass killers often mentally unstable
  • Mass killers often social rejects
  • Mass killers often attack in “gun-free zones”

Among the above correlations, some are so general that they are useless (e.g. most mass murderers are young and male) and some are obvious (most are mentally unstable or are outcasts). The correlation between mass murderers and their choice of “gun-free zones” for location has policy implications, and a strong case against “gun-free zones” can be made using the same murderers cited in the Fox News article: Evan Ramsey, the Columbine shooters, Anders Breivik, Seung-Hui Cho, James Holmes, Adam Lanza, and Michael Carneal all committed their crimes in “gun-free zones”. Only Jared Loughner (whose location was dictated by where he could get close to his target) and Devin Moore (who was trying to escape police custody and could not control his location) committed their crimes outside of a “gun-free zone”. Moreover, the recent Navy Yard shooting (which occurred after the Fox News article was published) and many other mass shootings occurred in “gun-free zones”.

In any case, the correlation between violent video games and mass murderers is tenuous at best. For all the millions of violent video game players very few of them commit mass murder. To get a rough idea of the percentage of violent video game players who commit mass murder, first note that the article cites 10 mass murderers. Next, assume that the number of violent video game players is approximately equal to the number of copies of Call of Duty Black Ops sold (about 18 million). This is an underestimate of the total number of such gamers because, while Call of Duty is the most popular first person shooter franchise, not everyone plays it (such as myself: I play games like Battlefield but not Call of Duty). Using these numbers (10 mass murderers out of 18 million gamers) we get a miniscule figure of < 0.00006% of murderous gamers. One would expect a much higher percentage (and many more mass murderers) if violent video games are truly able to warp a gamer’s sense of reality.

On Minimum Wage

One of the major differences between leftists and conservatives on economic policy is minimum wage. In general, leftists support a relatively high minimum wage (which they call a “living wage”) and conservatives argue that minimum wage should be lower or even non-existent. Leftists argue that a high minimum wage is necessary to reduce poverty and improve the quality of life for low income workers, but conservatives point out that a higher minimum wage has the effect of increasing unemployment — meaning that those minimum wage workers who do have a job have a higher quality of life, but there are also more would-be minimum wage workers who are unemployed and who obviously have a lower quality of life.

While the political debate over minimum wage rages on between leftists and conservatives, there is actually very little debate among economists that minimum wage is at best of dubious benefit and at worst economically foolish: the vast majority of economists (about 79%) agree that a minimum wage increases unemployment among young and unskilled workers (which are the very workers who are supposed to benefit from a minimum wage). Moreover, there is ample empirical evidence supporting the conservative and economists’ position that minimum wage increases unemployment. For example, just recently Walmart canceled plans to add three stores to Washington, D.C., when the D.C. Council voted to raise minimum wage there — so anyone who might have gotten a job at one of those Walmart stores is left unemployed. More generally, economist Walter Williams cites a study which

…focuses on 16-to-24-year-old male high school dropouts, understandably a relatively inexperienced group of labor market participants. Since minimum wage laws discriminate against the employment of the least-skilled worker, it shouldn’t be surprising to find 16-to-24-year-old male high school dropouts its primary victims.

Among the white males, the authors find that “each 10 percent increase in a state or federal minimum wage has decreased employment by 2.5 percent; for Hispanic males, the figure is 1.2 percent.

“But among black males in this group, each 10 percent increase in the minimum wage decreased employment by 6.5 percent.”

The authors go on to say, “The effect is similar for hours worked: each 10 percent increase reduces hours worked by 3 percent among white males, 1.7 percent for Hispanic males, and 6.6 percent for black males.”

[The authors] compare the job loss caused by higher minimum wages with that caused by the recession and find between 2007 and 2010, employment for 16-to-24-year-old black males fell by approximately 34,300 as a result of the recession; over the same time period, approximately 26,400 lost their jobs as a result of increases in the minimum wage across the 50 states and at the federal level.

Interestingly, the negative effect of minimum wage on unemployment is worst for young black men. Normally leftists make the accusation that policies which are more harmful to blacks or other minorities are “racist” or “sexist” but they are predictably silent on this issue since they support a higher minimum wage.

To understand exactly why minimum wage increases also increase unemployment, one must first understand that employers and workers are engaging in an economic transaction for labor. Employers demand labor for their businesses and workers supply labor in exchange for wages and other forms of compensation (e.g. benefits). As in any economic transaction, the supplier has a minimum price at which he is willing to supply an economic good and the buyer has a maximum price at which he is willing to buy that good. In this case, the supplier is a worker with a minimum price (wage) he is willing to supply laber (e.g. no one is going to work for $0.01/hour), and the employer has a maximum price (wage) he is willing to pay for that labor. In order for the economic transaction to be completed, the worker and employer must have an overlapping range of wage values they will agree to — which means the worker’s minimum wage must be lower than the maximum wage the employer is willing to pay. However, if the government imposes a minimum wage law which is above the employer’s maximum wage then no economic transaction takes place — i.e. the potential employee is left without a job.

To illustrate this principle with numbers, suppose an employer expects to earn $10/hour by hiring a worker. This $10/hour is the maximum wage he is willing to pay, because if he pays higher than that he will actually lose money by hiring the worker. A worker will attempt to extract the highest wage possible from this employer, but he will not be hired unless he is willing to accept a wage less than $10/hour. If the worker is willing to work for a minimum of, say, $5/hour, then the worker and employer will be able to agree on a wage between $5/hour and $10/hour. The problem with a minimum wage law, however, is that if the minimum wage is greater than $10/hour then the worker will not be hired even if the worker is willing to work for less than $10/hour. In that case the government has prevented the economic transaction from taking place, and the would-be worker remains unemployed and the employer is unable to grow his business. Worse, the unemployed worker is unable to gain experience and reputation to improve his skills and ability to obtain other jobs (which may pay higher than minimum wage). The worker is thus stuck looking for no skill, minimum wage jobs, which he may never be able to find if the government mandated minimum wage is too high.

The conservative position is that the government mandated minimum wage should either be low or non-existent. While this would appear to help greedy business owners reap higher profits at the expense of their minimum wage workers, in actuality both the owner and worker may benefit. Workers are free to choose between accepting a low paying job (and possibly looking for a better paying one while gaining skills and experience) or remaining unemployed (no one is forced to take a job, so if it pays too little the worker can simply reject the job offer). Meanwhile, business owners are able to expand their businesses by hiring workers to do jobs which do not earn enough to support whatever high government-mandated minimum wage (“living wage”) leftists arbitrarily choose. So long as the economic transaction (job hire) takes place, both the business owner and hired worker benefit (otherwise either the owner or worker would refuse to enter into the transaction). While minimum wage workers (indeed, all workers) would obviously prefer to receive higher compensation, the fact that the worker has accepted the job is proof that the compensation is sufficient. A low or non-existent minimum wage law thus offers workers and employers the most economic freedom and does not artificially and unnecessarily increase unemployment.

On Feminism: Intersectionality and Privilege

Modern feminism has fallen far from the noble efforts of first-wave suffragettes. As feminism advanced to its second and third waves, it expanded into a variety of topics (and along the way many women forgot what the word “suffrage” even means). One such topic is intersectionality, and the related concept of privilege. Intersectionality is the study of the interaction of multiple systems of oppression or, put more bluntly, the study of compound victimhood. According to intersectionality, a black lesbian woman, for example, is multiply oppressed by racism, heterosexism, and sexism. Privilege is the opposite of victimhood and also compounds in a similar way — a white heterosexual man, for example, is multiply privileged. Individuals may be simultaneously victims and privileged — for example, a white woman is privileged by race but a victim by sex. According to intersectional feminism, therefore, society is highly stratified among many dimensions and each individual is a complex web of interconnected oppressions and privileges.

Although the concepts of intersectionality and privilege are major topics within feminism, they have very little practical use. The extent of the usefulness of intersectionality and privilege is that differences (in sex, race, age, nationality, etc.) between two persons can make it difficult for them to empathize with each other, and a person who is mindful of such differences will be better able to empathize with other people. But this insight was not discovered by feminism and is hardly a new concept.

The main problem with intersectionality and privilege is that any attempt to use them in practice (i.e. during an argument or debate) will almost certainly result in a logical fallacy — specifically, a circumstantial ad hominem or the related genetic fallacy. A circumstantial ad hominem fallacy is an argument that one’s debate opponent is predisposed to take a particular position (e.g. a feminist claims that a white man is privileged and therefore predisposed to oppose a feminist argument). This is a fallacy since (a) it does nothing to address the anti-feminist’s argument (it attacks the person of the anti-feminist instead), and (b) a predisposition toward an argument does not make it false. The related genetic fallacy attempts to argue that an argument is wrong because of its source or origin (such as the person making the argument). A common example of a genetic fallacy is the claim that most theists are only theists because they were raised to believe in theism, and that therefore theism is false; while it is probably true that someone raised to believe in theism is more likely to be a theist than someone who was raised to believe in atheism, this point says nothing about the truth or falsehood of theism. As with the circumstantial ad hominem (or any ad hominem), the genetic fallacy does not address the argument itself. The reason why invoking the concepts of intersectionality and privilege usually results in a logical fallacy is that these concepts are, by nature, concerned with the circumstances of individuals and their perspectives rather than their arguments.

To understand why a circumstantial ad hominem fallacy or a genetic fallacy results in an unsound argument, suppose a man such as myself made the claim that “childbirth is generally painful for a woman” and a feminist retorted that “you can’t know that since you’re a man”. The feminist’s retort attacks the person who made the claim (circumstantial ad hominem fallacy) and the source of the claim (genetic fallacy) rather than the claim itself. Moreover, the feminist’s retort is obviously fallacious since the claim (“childbirth is generally painful for a woman”) is uncontroversial and supported by ample evidence (including, but not limited to, personal testimony of vast numbers of women who have given birth and the fact that physicians often give epidural anesthesia to women in labor). The claim is true whether made by a man, woman, or anyone else.

Yet this is precisely the fallacious argument sometimes made, for example, by feminists and other supporters of legalized abortion when a man presents an argument against legalized abortion: the fallacious claim is that men can never know what it is like to be pregnant with an unwanted mass of tissue child or to decide to get an abortion, so men have no right to argue against (or presumably for) abortion. While it is true that a man cannot personally experience these things, that is beside the point and fails to address his argument against abortion. His argument is either true or false depending on its own merits and on his premises, not on the fact that it was uttered by the mouth of a man. A woman making the exact same argument would not make it any more or less true, either.

A Helpful Chart: Illustration of a Textbook Genetic Fallacy

More generally, perhaps the most common way a feminist invokes intersectionality and/or privilege (and the associated fallacies) is when she tells her opponent to “check your privilege”. Obviously, an argument originating from a person who is allegedly privileged is not discredited by this point alone, so telling someone to “check your privilege” is — logically — a non sequitur. Nonetheless, telling someone to “check your privilege” can be effective in discrediting the allegedly privileged person in the eyes of an audience unfamiliar with logical fallacies. That, plus the fact that many feminists evidently don’t understand the ad hominem and genetic fallacies, is why feminists use such pointless pseudo-arguments. To recover from a call to “check your privilege” turn it back on the feminist and tell her to check her fallacies — and then explain what circumstantial ad hominem and genetic fallacies are to her and the audience.

On Welfare Traps

A welfare trap is a situation in which the income (wages plus government benefits) of an individual on welfare remains the same or actually decreases if that individual starts to earn higher wages but loses some or all of his government benefits. For example, if a particular government program provides $5k in benefits for individuals earning $30k or less, an individual who earns $29k in wages has a higher income ($34k) than another individual who earns, say, $32k in wages. Obviously, this creates a perverse incentive for individuals on welfare to avoid work or higher-paying work (which, to first order, is more productive and generates more wealth) since they have the same or even higher income by not working and/or being less productive. This perverse incentive exists even for otherwise well-motivated individuals on welfare (i.e. people who are not simply lazy “moochers”). Moreover, for all the talk that the “rich” should “pay their fair share” there is no rational definition of “fair” whereby a person on welfare doing little or no work has more income than a more productive person earning higher wages.

Unfortunately, all the focus on “fairness” in the U.S. tax code has nonetheless ignored the fact that there do exist significant welfare traps in America. Zero Hedge found a presentation by Pennsylvania Secretary of Public Welfare Gary Alexander with some clear (and disturbing) graphics that highlight these welfare traps. One such graphic is:

Click for larger image.

The plot is of income (welfare benefits + wages) as a function of wages. The dark blue bars indicate contribution to the net (after-tax) income of an individual due to earned income alone. The bars of other colors indicate the contribution to a person’s net income of various welfare programs.

There are two ways to look at this plot. The first is to follow the net income (vertical axis) as wages (horizontal axis) increase slightly. For the most part a small increase in wages results in a small increase in net income, but in several places and in a variety of situations net income decreases significantly as wages increase slightly. For example, a person who earns $29k and qualifies for all benefits has net income of about $57.3k, but if that person increases his or her wages to $31k then net income falls below $50k. Consequently, a person who earns $29k and qualifies for all benefits is discouraged from earning higher wages by a loss of over $7k in net income — even if that person is a hard-working and motivated individual trying to earn a better life for his or her children. Every case in the plot in which net income suddenly decreases like this is a welfare trap, and every such welfare trap hurts the economy since it discourages people from being more productive and earning more.

The second way to look at the plot is to compare points where net income is the same for different earned incomes. The one highlighted in the plot shows that a person earning $29k and who qualifies for all benefits has the same net income as someone who qualifies for no benefits but earns $69k. There is also a case where someone earning only $9k and who qualifies for all benefits has the same net income (about $54k) as someone who qualifies for no benefits but earns about $64k, although at least in this case the person earning only $9k has somewhat of an incentive to earn more since he or she only needs to earn $15k to increase his or her net income. This situation is not “fair” under any reasonable definition of “fair”, which reveals that the left’s complaint that the “rich” don’t pay their “fair share” of taxes* is either a red herring (i.e. they aren’t concerned about fairness and just want to soak the “rich”) or (naively?) selective. Leftists would undoubtedly seek to flatten the net income curve by raising the means test thresholds and thereby increase the net income of those earning between $30k and $69k, but if $42k (the minimum net income on the plot) is sufficient for people earning $44k then $42k is sufficient for everyone earning less than $44k and benefits can be reduced. The savings from such a benefit reduction could be used to slightly increase the net income of the poor slobs earning too much to qualify for benefits but not enough that their net income is higher than those who do, or — even better — reduce our deficits and debts (the federal government alone has been running deficits greater than $1 trillion in recent years, and has a total debt greater than $16 trillion and greater than the U.S. GDP).

Welfare traps such as the ones in the above plot help explain why the poor in America are often seen as lazy and/or “moochers” by conservatives: those with low wages earn less, yet through a variety of welfare programs can actually have a higher income than middle wage earners who do not qualify for such welfare programs. While it is justifiable for middle income earners to be angry and frustrated that lower income earners can have a higher total income, the problem is with the government and its policies rather than the low wage earners themselves. To re-iterate the point: welfare traps give low wage earners perverse incentives against seeking an increase in their wages, so even a hard-working and well-motivated individual finds it personally beneficial to avoid higher wages and productivity. There is no need to demonize the poor (or the rich, for that matter). Perhaps if politicians spent less time demonizing people and more time considering the unintended consequences of their actions they could agree to eliminate obvious obstacles to economic growth such as welfare traps.

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* This complaint uses the left’s preferred but subjective definition of “fair”, and the left’s incorrect definition of “rich” as high income earners.

On Media Bias: Unemployment Rate Edition

The BBC recently posted an article with an exciting title: U.S. unemployment rate falls to four-year low. Sounds wonderful, doesn’t it? The first few paragraphs make it sound even better:

The US added 146,000 jobs in November, official data shows, as the economy seemingly shrugged off storm Sandy.

The unexpectedly strong performance brought the unemployment rate down to a four-year low of 7.7% of the workforce.

The jobs figure was well above most analysts’ expectations and continued a recent surge that began in July.

Weekly benefits data registered a sharp but short-lived jump in the number claiming unemployment benefits in the states ravaged by the storm last month…

Unfortunately, the details in rest of the article don’t sound so great. For one, the Bureau of Labor Statistics (BLS) had to (surprise, surprise)

downwardly revise the jobs [gains] for the preceding two months by a cumulative total of 49,000.

Those preceding two months, of course, include the October right before the election.

But the real gem of information was left until the antepenultimate paragraph:

Statistics suggest that much of the decline in the unemployment rate since 2008 has been due to people dropping out of the workforce, either due to retirement or because they have given up seeking work.

So most of the decline in the unemployment rate isn’t due to an economy with “strong performance” that is adding jobs, but rather due to people retiring and giving up the job search! That information belongs near the first paragraph because it changes the interpretation quite drastically. However, it does not fit the leftist narrative that the Democrats (who control the executive branch and the Senate) are slowly but surely digging us out of the “Great Recession” caused by the Democrat-controlled 110th Congress President Bush, so it is left at the very end of the article in the hope that most readers will stop reading before they get to the end.

The lesson here isn’t so much that the media is biased, or even that it is biased in favor of leftists. The real lesson is that an otherwise objective, unbiased statement like “the unemployment rate falls to a four-year low” can nonetheless be written or said in a way that suggests a very biased interpretation by including or excluding certain bits of information, or by giving certain bits of information more prominence than other bits of information. Such a bias is ultimately even more of a problem than an openly biased news source — at least it is obvious that an openly biased source may be trying to persuade you, but you may not seek other sources or think critically about information received from a purportedly objective news source with a subtle bias.

Thomas Sowell on Tax Cuts

One of the most contentious topics in recent American politics has been tax policy. Republicans have advocated tax cuts to relieve the tax burden on Americans and, in doing so, (hopefully) improve the economy. In contrast, Democrats have advocated tax rate increases on the “rich” (who are mistakenly considered to be high income earners regardless of wealth) in the hope that tax revenues can be increased so that the federal government can be more generous with its welfare and entitlement programs. Republicans argue that increased tax rates will increase the tax burden on Americans, which will ultimately hurt both the economy and tax revenues. Democrats have made some serious arguments against Republican plans for tax cuts, but more often than not have attacked those plans as “tax cuts for the rich”, “trickle-down theory”, etc.

Economist Dr. Thomas Sowell has written a superb and informative article addressing these leftist attacks on “trickle-down theory” and the like. The article — which everyone should read — explains that leftists are attacking straw men when they make such arguments since no one has ever actually advocated a “trickle-down theory” or anything like it. As Dr. Sowell explains this fallacious thinking:

What is…inconsistent [about such arguments] is attributing [leftists'] own assumptions to those who are arguing on the basis of entirely different assumptions. Challenging those other assumptions, or the conclusions which derive from them, on either analytical or empirical grounds would be legitimate, but simply attributing to them arguments that they never made is not.

Dr. Sowell demonstrates that not only has no conservative or Republican has ever argued for a “trickle-down theory” or the like, but that Democrats like Woodrow Wilson and John F. Kennedy and even economists like John Maynard Keynes have argued for tax rate cuts in order to improve the economy and increase tax revenues.

Avoiding the leftist assumptions and inflammatory word choices, Dr. Sowell offers the following succinct explanation of the actual theory (emphasis his):

[H]igh tax rates that many people avoid paying do not necessarily bring in as much revenue to the government as lower tax rates that more people are in fact paying, when these lower tax rates make it safe to invest their money where they can get a higher rate of return in the economy than they get from tax-exempt securities.

In other words, lower tax rates encourage people — poor, rich, low income, high income, etc. — to invest their money in the economy rather than in tax-exempt securities, which results in an improved economy and increased tax revenues. Tax revenues increase despite lower tax rates since there is more taxable income overall.

Finally, it’s worth noting — as Dr. Sowell points out in his article — that tax cuts have resulted in increased tax revenues as recently as George W. Bush’s presidency. As much as the left hates the Bush tax cuts, even the New York Times admitted that a

steep rise in tax revenues from corporations and the wealthy is driving down the projected budget deficit this year, even though spending has climbed sharply because of the war in Iraq and the cost of hurricane relief.

This is a telling admission since the New York Times is hardly a friendly source for conservatives and Republicans — betraying its already obvious leftist bias, the Times called this increase in tax revenues “surprising” and “unexpected” despite the fact that such an increase in tax revenues was and is entirely expected by conservatives. It’s also noteworthy that the increased tax revenues came mostly from corporations and the wealthy, which are precisely the groups the left keeps telling us they want to “ask to pay a little bit more”.

Dr. Sowell’s article explains all this and more (in layman’s terms, as he is known for) so be sure to read the entire article.