If you're in the S&P 500, you have no trouble financing your business. You can't say that about small business anymore. The cost of capital has gone through the roof.
If Ocasio-Cortez has her way, Democrats are going to do to the rest of America what they just did to New York.
For economists, the unemployment rate has always been a lagging indicator: It’s like looking in the rear-view mirror. It tells us where the economy was in the not-too-distant past.
But one could arguably view unemployment as a leading indicator, if a rather perverse one. If you look at the relationship between the unemployment rate and the 10 most recent recessions in the U.S., it’s striking how quickly recessions follow in the wake of the economy hitting full employment.
Expensive pictures are primarily what economists call positional goods — things that are valuable largely because other people can’t have them. The painting on the wall, or the sculpture in the garden, is intended to say as much about its owner’s bank balance as about his taste. With most kit a higher price reduces demand. But art, sports cars and fine wine invert the laws of economics. When the good that is really being purchased is evidence that the buyer has forked out a bundle, price spikes cause demand to boom.
By moving towards sharply higher minimum wages, policymakers are accelerating into a fog. Little is known about the long-run effects of modest minimum wages. And nobody knows what big rises will do, at any time horizon. It is reckless to assume that because low minimum wages have seemed harmless, much larger ones must be, too. One danger is that a high minimum wage will push some workers out of the labour force for good. A building worker who loses his job in a recession can expect to find a new one when the economy picks up. A cashier with few skills who, following the introduction of a high minimum wage, becomes permanently more expensive than a self-service checkout machine will have no such luck.
The British government’s defence of its new policy—that a strong economy will generate enough jobs to replace those lost to a higher minimum wage—is disingenuous: the jobs are still lost. That is why Milton Friedman described minimum wages as a form of discrimination against the low-skilled.
The irony is that minimum wages are a bad way to combat poverty. The Congressional Budget Office reckons that only one-fifth of the income benefits go to those beneath the poverty line.
Employers may struggle to tell which job candidates are best. Mr Spence showed that top workers might signal their talents to firms by collecting gongs, like college degrees. Crucially, this only works if the signal is credible: if low-productivity workers found it easy to get a degree, then they could masquerade as clever types.
Credit history is a credible signal: it is hard to fake, and, presumably, those with good credit scores are more likely to make good employees than those who default on their debts.
Signalling helps explain what happened when Washington and those other states stopped firms from obtaining job-applicants’ credit scores. Credit history is a credible signal: it is hard to fake, and, presumably, those with good credit scores are more likely to make good employees than those who default on their debts. Messrs Clifford and Shoag found that when firms could no longer access credit scores, they put more weight on other signals, like education and experience. Because these are rarer among disadvantaged groups, it became harder, not easier, for them to convince employers of their worth.
Signalling explains all kinds of behavior...The car insurer must offer two deals, making sure that each attracts only the customers it is designed for. The trick is to offer one pricey full-insurance deal, and an alternative cheap option with a sizable deductible. Risky drivers will balk at the deductible, knowing that there is a good chance they will end up paying it when they claim. They will fork out for expensive coverage instead. Safe drivers will tolerate the high deductible and pay a lower price for what coverage they do get.
Adverse selection has a cousin. Insurers have long known that people who buy insurance are more likely to take risks. Someone with home insurance will check their smoke alarms less often; health insurance encourages unhealthy eating and drinking. Economists first cottoned on to this phenomenon of “moral hazard” when Kenneth Arrow wrote about it in 1963.
Moral hazard occurs when incentives go haywire.
So, another option is to pay “efficiency wages”. Mr Stiglitz and Carl Shapiro, another economist, showed that firms might pay premium wages to make employees value their jobs more highly. This, in turn, would make them less likely to shirk their responsibilities, because they would lose more if they were caught and got fired. That insight helps to explain a fundamental puzzle in economics: when workers are unemployed but want jobs, why don’t wages fall until someone is willing to hire them? An answer is that above-market wages act as a carrot, the resulting unemployment, a stick.
In markets with imperfect information, price cannot equal marginal cost.
A formula for growth that takes no account of social and political complexities is no formula at all.
Financial crises tend to involve one or more of these three ingredients: excessive borrowing, concentrated bets, and a mismatch between assets and liabilities.
Judge your success by what you had to give up in order to get it.
If you're in the S&P 500, you have no trouble financing your business. You can't say that about small business anymore. The cost of capital has gone through the roof.
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