Are minimum wage laws wrecking small town economies?

Originally posted on Making New Zealand. My claim is that minimum wage laws create an economic distortion that may be more severe than appears on the surface. They exaggerate pressure for the demographic shift from smaller poorer cities, to bigger and richer ones. In turn further inflating demand and prices for housing in the bigger cities, for where those cities have artificial constraints on the development of housing supply.

Minimum wages sound like a nice idea. They make sure that no-one, as we assume, is unacceptably under-paid. But to see minimum wages that way is simplistic thinking. Here's the flip-side:

"Minimum wages make if illegal for the most disadvantages people in our society to sell their labour at the price it will be bought for, and in turn it forces them into joblessness and total welfare dependency".

Hmmm...not so nice and protective after all, right? Especially when that unemployed person would have far prefered to work for say $7 per-hour for 20 hours a week, to top up their benefit by $100 per-week, and have the opportunity to prove themselves in the workforce and develop skill and experience. From here minimum wage laws can look stupid, or even cruel.

But there's another concerning dynamic to having high minimum wages that are standardised throughout a nation, such as New Zealand, which is the crux of my article. Small town economies whose natural (market) bottom-level wage is much lower than the legislated minimum, are artificially forced to have high unemployment.

Now you might not think that having high unemployment with respect to low-skilled workers is all that important to the prosperity of an economy overall, as we assume that low-wage workers are not highly productive workers. However I would argue that that interpretation is a mistake. I will make my point clear with the following example:

Many people confuse market value with inherent value, as though they are the same. Oxygen gives us a great example: The market value of oxygen is basically zero because it's immediately accessible, self replenishing, and universally abundant - and so its sale price is zero, and so its market value is zero. But its inherent value is as absolute as the fact that you're dead without it.

And that's just it. I would argue that that great army of low-skilled workers is more the "human oxygen" of a successful economy than we typically appreciate. The somewhat low price we pay for unskilled labour may have more to do with its abundance, than its inherent worth.

In turn, in having high legislated minimum wages in small town economies that struggle to pay them, we may be starving those economies of the cheap labour force that they may desperately need to optimize. The result? People flee the regions for the big cities at a rate that's probably much more aggressive than it would be, for if it were not for an excessively high minimum wage helping to suffocate those small town economies. Artificially exaggerating their situation of high unemployment, and low productivity.

For interest: What would be the effect of no minimum wage?

What would happen overall if we cut the minimum wage back to say $8 per-hour, which is a radical reduction from about $15 per-hour, as it stands today. I will speculate.

First, no-one will starve because we have a comprehensive welfare system that doesn't let that happen. So don't freak out. Indeed you would make it a heck of a lot easier for the poorest in our society to earn some extra cash, so bottom-level incomes will generally go up.

On top of this the country as a whole would be considerably richer because there would be a lot less waste in productive potential, as we're not wasting labour.

As I previously indicated, unemployment would quickly drop off in the smaller towns as cheap labour is capitalized upon, by entrepreneurs and also other established companies maybe wanting to outsource parts of their operation to cheaper labour pools.

It would also be good for people on a pension, who want to earn a bit more cash and stay in contact with the workforce. It's okay to be a bit slower if your boss doesn't have to pay you so much. You can still sell your labour.

Over time wages would appreciate naturally (not legislatively) as economic development allows wages all-round to rise. Always this is the best way to let wages rise.

--I think it was Milton Friedman who explained that minimum wage laws were originally driven by special interests, and not public compassion? (short video here).

Yes they don't care - So what are we going to do about it?

Originally posted on Making New Zealand. You will remember the Rwandan genocide, where over a million Africans were butchered over 100 days. We all looked at the incident with revulsion and knew that it was tragic, but did we lose any sleep over it? The answer is of course, No - myself included.

This is not because we are heartless or evil. It's simply because we in New Zealand have virtually no group-identification with the people of Africa. They are (or were) to us an alien people living far away in another world, and it's not natural to empathically care about others that are so distant from ourselves. And that's a good thing because we would all be emotional wrecks if we did.

You can see where I'm going with this example. There is a difference between principled caring and empathetic caring. Principled caring means being dedicated towards doing what you believe is right, which is respectable in itself of course. But it's not true caring in the empathetic sense. I would argue that empathetic caring requires social identification.

Now your national government will be made up of a few tribal political parties. They will have some empathetic link towards each other, but I would say a very weak link to the people they represent. Again it's that 'other world' thing - the more they become isolated to their bubble, the more the wider New Zealand society becomes (emotionally) irrelevant to them. Hence they govern us on the basis of principled caring - not empathetic caring.

Is there a material difference? Hell yes. The weakness of mere 'principled' caring is that it's heavily open to rationalisation. When it's all in your head, not your heart, you can too easily believe in what's expedient as opposed to what's real, and especially if those rationalisations are group-reinforced by those that you are attached to. (This is not to say that empathetic caring doesn't have its weakness. It does. Excessive attachment to isolated cases can drive bad macro-scale policy. Sometimes emotion needs to be kept in check).

Now....on to the property market.

We have this non-psychopathic National party guy, John Key, saying some bizarre things. He tells us that he's sticking up for the poor by not letting property prices fall, so those who have a mortgage don't have to watch their capital gain evaporate [to update, and now Jacinda Arden has done the exact same thing].

I would say this is a good example of principled caring at its worst. John Key shows us a politically expedient rationalisation coming from a detachment from the real poor. The real poor are the people who can't even dream of getting a mortgage and owning their own home in the first place.

If New Zealand was John Key's "tribe" (and not just the National party) then the silliness of his rationalisation would not have to be spelled out. His empathy alone would have told him to double-check his thinking. And in turn, he would have most likely declared the affordability problem a national emergency years ago.

But let's not beat-up too much on John Key. He's still only doing what most of us would do, which is what I was trying to show in the first half of my article. The real problem is ultimately systemic.

If you want to see a government that cares and responds to the will of the people, and effectively, then I would argue that you need to radically decentralise political power to small autonomous units. It will always be dangerous to have an empathetically detached elite exercising so much control over our lives, no matter their high-sounding principles which can too easily blow away in the wind.

And we see the truth of this today, so explicitly, with a property market so out of control that the poorer half of our society can barely even afford to have children. And a prime minister seemingly blind to the fact of it.

For interest: I made a 6 minute video relating to political decentralisation (here).

How do you kill a bad idea?

Originally posted on Making New Zealand.

Here's an interesting thought. Imagine what would happen if the global warming scaremonger machine discovered that they'd made a god-awful mistake, and that CO2 emissions were not a problem after all nor were ever realistically going to be. What would happen?

The answer is pretty much nothing. There would be a few detractors who would throw in their towels, because they can no longer support the cause of climate alarmism, but probably the greater body of people would simply put their heads in the sand and keep on keeping on. They have mortgages to pay and children to take care of. As for the detractors, they would be quickly replaced by more willing participants looking for a job, and before you know it we're back to business as usual (er, no blasphemers allowed).

My point is that money talks, even before truth. If your establishment is standing on a false premise, then that won't count for much if the premise is nonetheless being funded.

So this is the point. Once an idea becomes an establishment and it achieves a financial bloodline, some way or another, it will then NEVER fall on its sword. Even if in principle it should. The establishment wins and regardless of general human will.

Urban planning (yes, I was getting to that) as we know it today is indeed a bad idea. Yet it's funded, for and by plenty of pigs at the trough, and so here we have it. And for all the efforts of people like myself it hasn't gone away (though thankfully, times may be changing).

Modern planning ideology irrationally demonizes sprawl, even though only 1 part in 125 of New Zealand's land area is urbanized, and even though sprawl is often notably green in itself. They take the position that it's somehow the place of planners to dictate how people should live. In practice that means forcing people to live in small apartments and townhouses, for even if that's not their natural preference, because they believe that a city works better that way. Don't like it? You want to live in a detached home in a leafy suburb? Too bad. The planners know best.

This is philosophically perverse thinking. We should plan to accommodate demand - not dictate it. It's not the (rightful) place of planners to dictate our lifestyles, ahead of individual choice.

So how do we kill the planning poison, of which has devastated affordable housing and seriously undermined real economic development? We do it by going public - and driving direct political pressure. We kill it by making sure ever more people know the basics. The included video is one of my best efforts to that end.

And be assured, you're not listening to money because I have not been and will not be paid a dime. I can happily afford to be honest with myself, and likewise everyone else.

Link to my video: https://youtu.be/ay8wGdbQElU

How the Toyota i-Road can revolutionise Auckland transport

Originally posted on Making New Zealand
Modern planners in Auckland, and elsewhere, have been educated to believe in what is called 'transit-oriented development'. Basically, the idea is to build the city to conform to the transport system (buses and trains), rather than letting the transport system conform to the city - the latter of which being incomparably cheaper.

Ignoring the fact that transit-oriented development has long been a demonstrated failure, as it has worsened congestion and ruined affordable housing, we can nonetheless see an infinitely better solution to a better Auckland coming down the pipe, in the form of rapidly advancing transport technology.

Performance and demand:

The model case I want to look at is the Toyota i-Road, as I believe it has the most promise.

The i-Road provides a brilliant example of what innovative transport solutions can achieve today, using modern tools. It's being tested in Tokyo now and I understand it's due for mass-release in about a year.

The i-Road is a unique development because it provides a qualitatively superior 'experiential' service to cars, for general commutes and errands. This is because the format offers all the comfort of a car, yet actively tilts so as to make it extremely comfortable for cornering. It's also very easy to drive and can park as a motorcycle.

Now imagine if most people chose to buy the i-Road, because they liked using it and it pays for itself in savings, and only used their conventional car for when they specifically needed something bigger. The result would be a huge reduction in transport costs to the consumer yet for a superior transport service. The i-Road could presumably absorb over 50% of passenger transport demand today.

Energy:

The i-Road, with some basic modifications, could consume about 10% of the energy of an average car or bus. If it was built with platooning capability (easily done) then it could ride in the wind-shadow of a leading car, dramatically reducing aerodynamic drag at high speeds.

Make it a hybrid by employing a range-extender (small petrol-electric generator) and your i-Road might burn as little as 1% or 2% of the carbon of a conventional petrol-driven car, in total.

So please don't talk about the need to kill the car, and force people into trains, in terms of reducing CO2 or dealing with so-called peak-oil. Our capacity to adapt without forcing people into unworkable public transport systems is great, and the i-Road is indeed only one interesting example.

Congestion:

The i-Road can reduce congestion by platooning. But there is also another possibility.

If there is enough demand for the i-Road, then we can look at building under or over passes that accommodate the i­-Road exclusively. Imagine how much cheaper it would be to build an over-pass designed to accommodate 300kg vehicles only - and not truck conveys.

We do not need to go broke reproducing heavy transport infrastructure in the air. All we want is effective capacity relief to by-pass and relieve the bottlenecks. So why not?

If we employed this strategy, and also adopted strategic congestion-charging as required, then we could rapidly build Auckland out of its gridlock. The far-reaching savings from achieving this are, needless to say, enormous.

Driverless technology:

Here is an interesting thought. How hard (and dangerous) would it be to put some of Google's driver-less car technology in the i-Road, and give it the capability of driving itself to the next customer?

This would mean that anyone could order up an i-Road on their cellphone, with one button, and have a car come to them in just a couple of minutes. Wait for the text-alert to tell you it has arrived. Once you're in, you actively drive it yourself.

The technology exists to do this already - or very nearly. A driver-less revolution is a car-sharing revolution; providing cheap transport, convenience, and no parking hassles at all. It's curious that Toyota is trialing their i-Road as a car-sharing scheme, today. Maybe they're already thinking along these lines?

Conclusion:

Now what would you prefer, dear reader? Do you want transit-oriented development which forces people (in effect) to use trains because the congestion is left so bad, and drives crazy unaffordable housing via artificial land rationing; or do you want to see price pressures and relentless technological advancement drive an inevitable transport revolution like it is happening today?

Nearly no-one wants to sit in a train or bus, in preference to a far more private, economical, energy efficient, and rapid transport service as provided by modern transport technology.

Transit-oriented development is a silly fantasy dreamed up by rail enthusiasts decades ago, and it's totally out of sync with where transport technology has gone and is going.

The future will continue to be a revolution in cars - not a revolution away from them.