Sunday, January 21, 2007

When it comes to matters such as the theory of evolution and stem-cell research, so-called liberals—i.e., socialists who have stolen the name that once meant an advocate of individual freedom—ridicule religious conservatives for their desire to replace science with the dictates of an alleged divine power. Yet when it comes to matters of economic theory and economic policy—for example, minimum-wage legislation—these same liberals themselves invoke the dictates of an alleged divine power. Their divine power, of course, is not the God of traditional religion, but rather a historically much more recent deity: namely, the great god State.

Traditional religionists believe that an omnipotent God came before all natural law and was not bound or limited by any such law, but rather created such natural laws as suited him, as he went along. Just so, today’s liberals believe, at least in the realm of economics, that the State is not bound or limited by any pre-existing natural laws. In the case in hand, the State, today’s liberals believe, is free to decree wage rates above the level that would exist without its interference and no ill-effects, such as unemployment, will arise.

In this matter, the liberals have been as quick to cast aside whatever modest knowledge of economics they may once have had, as the traditionally faithful are quick to cast aside whatever relevant knowledge of physical cause and effect they may once have had. The traditionally faithful revel in the sight of a seeming miracle or even the mere report of a seeming miracle, such as a faith healer commanding the lame to walk, and on that basis abandon their knowledge of cause and effect in the realm of human anatomy and physiology. In the same way, today’s liberals have been reveling in the report of increases in the minimum wage unaccompanied by increases in unemployment, and on that basis have abandoned their knowledge that increases in wage rates reduce the quantity of labor demanded and thus do indeed cause unemployment.

The liberals’ faith healers in this instance are David Card and Alan Krueger, who are the authors of a book called Myth and Measurement: The New Economics of the Minimum Wage (Princeton, N.J.: Princeton University Press, 1995, 422 pp.). Their book is described by its publisher as presenting “a powerful new challenge to the conventional view that higher minimum wages reduce jobs for low-wage workers.… [U]sing data from a series of recent episodes, including the 1992 increase in New Jersey's minimum wage, the 1988 rise in California's minimum wage, and the 1990-91 increases in the federal minimum wage…they present a battery of evidence showing that increases in the minimum wage lead to increases in pay, but no loss in jobs.”

Denial of the Law of Demand

Card and Krueger and the “liberal” faithful who are eager to embrace their message may not realize it, but when they claim that increases in the minimum wage do not cause unemployment, what they are denying is one of the best established propositions in all of economics, namely, the Law of Demand.

This law states that, other things being equal, the higher is the price of any good or service, the smaller is the quantity of it demanded, i.e., the quantity that buyers purchase, and that, by the same token, the lower is the price of any good or service, the larger is the quantity of it demanded, i.e., the quantity that buyers purchase. Since wages are merely the price of labor services, the Law of Demand implies that all government and labor-union interference that forcibly raises wage rates above the height at which they would otherwise have been reduces the quantity of labor employers seek to employ in comparison with what it would otherwise have been. It thus implies that the government’s or labor unions’ interference causes unemployment.

One major reason for the existence of the Law of Demand is that while people would like to buy more goods and services, their ability to spend is always limited by the funds at their disposal. Lower prices enable the same funds to buy more, while higher prices prevent any given amount of funds from buying as much. In order to overthrow the Law of Demand, one of the things Card and Krueger would need to be able to do would be to show how the division of a given-sized numerator (i.e., the funds people have available to spend) by a larger-sized denominator (i.e., the prices and wages they must pay) does not result in a reduced quotient (i.e., ability to buy goods and labor services). It should be obvious that this is simply impossible and that insofar as the Law of Demand rests on the laws of arithmetic, no statistical data can ever overthrow it. Rather, the statistical data must be interpreted in a way that is logically consistent with the laws of arithmetic and their derivative, the Law of Demand.

It is very easy to provide such an interpretation. This is because, contrary to what Card and Krueger appear to believe, the Law of Demand does not claim that every rise in a price or wage must reduce the quantity of the good or labor service demanded below what it was before the price or wage was increased. That would be true only if all other things remained equal. When all other things do not remain equal, the Law of Demand claims merely that higher prices or wages cause the quantity of a good or labor service demanded to be less than it otherwise would have been.

The economic history of the last 60 years illustrates this. Over this period, prices and wages rose from one year to the next and yet the quantity of practically all goods and labor services demanded also increased from year to year. For example, in the late 1940s, the price of a new house was $10,000; that of a good-quality new automobile, $1,000; that of a meal at a first-class restaurant, less than $5; a high-level executive job paid $15,000 a year; and the federal minimum wage was 75¢ an hour. Since that time, all of these prices and wages have increased many times over. And yet, from year to year, the quantities of practically everything demanded increased rather than decreased.

The explanation, which is perfectly consistent with the Law of Demand, is the continuing increase in the quantity of money in the economic system. In the late 1940s the quantity of money in the United States was well below $100 billion. The total annual spending that such a money supply could support was in the low hundred billions. Since then the money supply has increased to almost $3 trillion, which is capable of supporting total annual spending that is vastly larger.

Minimum-Wage Laws Cause Unemployment Even When More People Work

With such an enormous increase in the funds at their disposal, people are capable of buying larger quantities of goods and labor services even at today’s sharply higher prices and wages. What is still true, however, is that if wages and prices had not risen as much as they have, the quantities of goods and labor services demanded would have increased by even more than they actually have, and thus that more workers would be employed than is in fact the case, with the result that unemployment would be less than it is. To the extent that the minimum-wage law has contributed to wage rates and prices being higher than they otherwise would be, it is responsible for unemployment, despite the fact that more people work today than at any time in the past.

Expenditure Shifting

A supporter of the minimum wage might argue that even though the total of people’s ability to spend is limited at any given time, their ability to spend on any one particular thing or category of things is still capable of being increased—by the simple means of their reducing their spending for other things. This is certainly true. The total wages paid to unskilled workers might increase to some extent at the expense of the wages paid to skilled workers. The total of the wages paid to all workers might increase to some extent at the expense of expenditures for capital goods, such as the materials and machinery bought by business firms.

Nevertheless, an increase in any given price or wage operates to discourage the shifting of funds to purchase the good or service in question. This is because its higher price or wage requires a greater sacrifice in terms of alternative goods or services that must be forgone in order to purchase it. For example, if a worker must be paid $200 per week, all that his employment entails is forgoing the purchase of other goods or services worth $200. But if he must be paid $300 per week, his employment requires the correspondingly greater sacrifice of alternative goods or services worth $300. The growing magnitude of sacrifice of alternative goods and services is a major reason that a rising price or wage results in a falling quantity of the good or service demanded, i.e., it is a further major reason for the existence of the Law of Demand.

Furthermore, what is required to bring about an increase in expenditure on any one good or service or category of goods or services at the expense of expenditure on other goods and services is either a decrease in their supply or a decrease in their price, neither of which is compatible with support for a minimum wage. For example, if the supply of crude oil, or the services of physicians, decreased by 10 percent, the price might easily double, because of the high value that people would attach to each unit of the remaining supply. In this case 1.8 times as much would be spent in buying the good or service—i.e., the doubled price times the remaining 90 percent of the initial quantity. Unfortunately for the supporters of the minimum wage, a case of this kind still implies a significant reduction in quantity demanded and in employment. (And I will soon show that the reduction in employment will turn out to be far greater than thus far indicated.)

As stated, what is also capable of bringing about an increase in the expenditure on a given good or service at the expense of other goods and services is a fall in its price. A fall in the price of a given good or service can often so dramatically improve its ability to compete against other goods and services for the limited supply of funds in the possession of buyers that more ends up being spent on it at a lower price than at a higher price. The automobile and computer industries provide illustrations of this phenomenon.

At the beginning of the 20th Century, automobiles were as expensive relative to the average person’s income as yachts are today. So long as that remained true, the automobile industry had to remain a minor industry. But as the cost of production and price of automobiles came down, a mass market developed in which the increase in quantity demanded far outweighed the decrease in price. The same story was repeated in the last decades of the 20th Century, as the price of personal computers radically declined and their quality greatly increased, with the result that another major new industry came into being.

It should be obvious that cases of this kind are of no help to the supporters of the minimum wage. For, when applied to labor, they rest on wage rates falling, as the means of expanding the quantity of labor demanded. The imposition of a minimum wage or of an increase in an existing minimum wage, works in the diametrically opposite direction. It reduces the ability of low-skilled workers to compete and thus forces them into unemployment.

Low-Skilled Workers Compete by Means of Low Wages

The relationship between the wage rates of the low-skilled and their ability to compete with more-highly-skilled workers needs elaboration. Lower wage rates are the means by which less-skilled workers compensate for their lack of skill and are enabled to compete with more-skilled workers. Imagine, for example, the case of two bricklayers, one of whom is able to lay twice as many bricks per hour as the other. Is there any way in which the less capable bricklayer can successfully compete against the more capable bricklayer? Yes there is. All he needs to do is be free to work at less than half the wage rate of the more capable bricklayer. In that case, the cost per brick laid is actually less using him than the more capable bricklayer.

But what is the effect of a minimum wage that sets the wage of the less capable bricklayer at more than half that of the more capable bricklayer? The effect is to prevent him from competing. It is to render his services more costly than those of his more-capable competitor and thus to force him into unemployment.

The essentials of this case are present in all instances in which some workers have less to offer employers in the way of skills and ability than other workers. For example, workers who cannot speak the native language are necessarily at a disadvantage compared with those who can. In a free market, they can overcome that disadvantage by means of being able to offer to work at sufficiently lower wage rates. Similarly, workers who do not know how to read, or cannot read very well, are necessarily at a disadvantage compared with those who can read or can read better. If they are to be employed, they need to be able to overcome these disadvantages through the offer of working for sufficiently lower wage rates.

Minimum-wage laws prevent all such workers, workers with disadvantages in skills and abilities, from competing. They condemn such workers to unemployment and thus deprive them of the opportunity to improve their skills and abilities by gaining work experience. In this way, despite all protestations of their supporters to the contrary, minimum-wage laws are the enemy of the disadvantaged.

Minimum-Wage Laws Also Cause Unemployment Indirectly

The extent of the harm minimum-wage laws cause is considerably greater than has thus far been explained. Its measure includes even those instances in which an increase in the minimum wage is accompanied for the most part by an increase in the funds expended in paying it and very little by any immediate unemployment on the part of those receiving it. Indeed, even if, contrary to economic law, it were somehow the case that a rise in the minimum wage were accompanied by such a shifting of funds from elsewhere, that exactly the same number of workers were employed at the now higher wage as were previously employed at the lower wage, it would still end up causing substantial additional unemployment among the low-skilled in comparison with what their unemployment would have been otherwise.

This becomes clear when it is realized that to the extent that funds are withdrawn from spending elsewhere in the economic system, namely, from spending on capital goods and the wages of more-skilled labor, corresponding unemployment is created in those areas. That unemployment could be overcome if wage rates in the rest of the economic system were free to fall. But under a regime of minimum-wage legislation combined with pro-union legislation, in which labor unions impose minimum wages of their own for the various grades of more-skilled labor, that fall in wage rates will be prevented. The result is simply that unemployment is created elsewhere in the economic system. (It should be realized that the influence of labor unions on wage rates extends far beyond the ranks of unionized labor. It extends to all non-union firms that want to remain non-union. Because in order to remain non-union, they must match the unions’ wage scales.)

The more-skilled workers who become unemployed as the result of funds being shifted from the demand for their services to the payment of a higher minimum wage, will be able to become reemployed in other lines of work. Thus, for example, computer programmers, say, who become unemployed will be able to find other employment where their superior skills and abilities enable them to outcompete workers who have up to now been performing these jobs. These jobs, perhaps, may be those of mid-level managers, technical writers, salesmen for high-tech products, and the like.

The workers displaced from these lines must in turn now find alternative employment. To the extent that their skills and abilities are greater than those of the workers with whom they compete, they will succeed in finding employment. Thus they may end up working as bookkeepers, clerks, and the like. But now the less-skilled workers whom they outcompete will be unemployed and in need of finding other work.

What is present is a process of labor being shifted down into occupations of progressively lower levels of skill and ability. The process ends in the increase in the supply of labor in the occupations at the bottom of the various levels of skill and ability.

The larger number of workers now competing for jobs at the bottom could potentially all be employed in those jobs. But that would require a fall in wage rates to increase the quantity of their labor demanded. That fall in wage rates, of course, is precisely what the existence of the minimum-wage law prevents.

In the absence of the fall in wage rates, the workers who become unemployed are once again the comparatively less skilled. But in this case, which is that of the less-skilled workers in occupations already requiring only the lowest levels of skill, the workers who become unemployed are the lowest-skilled in the economic system.

Thus even if, however unlikely, the imposition of a minimum wage began in conditions in which it did not directly and immediately create any unemployment whatever, because of the shifting of funds from elsewhere to pay it, it would end up creating unemployment among the least skilled members of the economic system.

What is present in this analysis is merely an application of Henry Hazlitt’s one-sentence summary of his great classic Economics In One Lesson: Namely, that “The art of economics consists in looking not merely at the immediate but at the longer effects of any act or policy; it consists in tracing the consequences of that policy not merely for one group but for all groups.”

That lesson was apparently never learned by Card and Krueger and their supporters. Judging the short-run effects of an increase in the minimum wage in a given state, such as New Jersey or California, on the unemployment rate of low-skilled workers in that particular state, which is what Card and Krueger did, does not begin to address the effects of raising the minimum wage. To do that, one must consider the effects, long-run as well as short-run, on the whole economic system. When one does this, one sees that the minimum wage does indeed cause unemployment among the least–skilled, most-disadvantaged members of the economic system.

Overcoming Poverty Requires Repealing Minimum-Wage Laws Throughout the Economic System

The preceding analysis has an important implication concerning how people who are genuinely concerned with improving conditions for those who are least well off might go about actually achieving that goal. Namely, instead of imposing and raising minimum wages at the bottom of the economic ladder, repeal them throughout the economic system. To whatever extent the ability of labor unions to impose above-market wage rates for skilled and semi-skilled labor could be reduced, to whatever extent licensing-law restrictions on the number of people allowed to practice in the various professions could be relaxed, the number of workers employed in all these lines would be increased. The consequence would be that the number of workers forced to compete at the bottom of the labor market would be correspondingly decreased and their wages increased.

Throughout the economic system, human ability would be better employed. Overall production would be greater and thus prices on the whole would be lower. The poorest members of the economic system would earn more and pay less. Not forcibly imposed minimum wages of any kind but the abolition of such forcible impositions is the means to overcome poverty. Repeal minimum-wage legislation, pro-union legislation, and licensing legislation. That is what will help to eliminate poverty.


This article is copyright © 2007, by George Reisman. Permission is hereby granted to reproduce and distribute it electronically and in print, other than as part of a book and provided that mention of the author’s web site www.capitalism.net is included. (Email notification is requested.) All other rights reserved. George Reisman is the author of Capitalism: A Treatise on Economics (Ottawa, Illinois: Jameson Books, 1996) and is Pepperdine University Professor Emeritus of Economics.

Labels: Card and Krueger, minimum wage, unemployment

 

Friday, January 12, 2007

My last post showed how The New York Times promotes the Green party line. The one before that showed how it has supported the Red party line. Like a traffic light, The New York Times alternates between Red and Green. (There is actually little fundamental difference between the two. The Reds want to abolish the individual’s pursuit of happiness on the grounds that it results in exploitation, monopolies, and depressions. The Greens want to abolish it on the grounds that it results in acid rain, destruction of the ozone layer, and global warming.)

Today we are back to Red, with two transparent attempts of The Times to promote the doctrine of class warfare.

In a January 8, 2007 article titled “Working Harder for the Man,” Times columnist Bob Herbert writes:

[T]he top five Wall Street firms (Bear Stearns, Goldman Sachs, Lehman Brothers, Merrill Lynch and Morgan Stanley) were expected to award an estimated $36 billion to $44 billion worth of bonuses to their 173,000 employees, an average of between $208,000 and $254,000, “with the bulk of the gains accruing to the top 1,000 or so highest-paid managers.” … There are 93 million production and nonsupervisory workers (exclusive of farmworkers) in the U.S. Their combined real annual earnings from 2000 to 2006 rose by $15.4 billion, which is less than half of the combined bonuses awarded by the five Wall Street firms for just one year.

As if to answer the question of whether his intention is to provoke a riot or revolution inspired by the notion of class warfare, Mr. Herbert concludes his article with these words:

There’s a reason why the power elite get bent out of shape at the merest mention of a class conflict in the U.S. The fear is that the cringing majority that has taken it on the chin for so long will wise up and begin to fight back.

I provide an exhaustive critique of Marxism and the doctrine of class warfare in my book Capitalism. Here I will observe only that the activities of businessmen and capitalists are the driving force of virtually all increases in real wages. It is their savings that pay the wages of workers and buy the capital goods with which they work and on which the wage earners’ productivity depends. It is the innovations of the businessmen and capitalists that underlie both continuing capital accumulation and the continuing rise in the productivity and real wages of the workers. To the extent that real wages fail to rise, the explanation is to be found in the frustration of the activities of businessmen and capitalists by misguided government policies that undermine capital accumulation and the rise in the productivity of labor.

In this brief space, I only want to concentrate on challenging Mr. Herbert’s assertions alleging a gross disparity between the earnings of a comparative handful of Wall Streeters and the great mass of wage earners.

As soon as I saw that Mr. Herbert was comparing the alleged meager growth in real earnings of wage earners with the alleged very substantial current monetary earnings of the Wall Streeters, a warning flag went up in my mind, simply because such a thing is not a legitimate comparison. It’s comparable to comparing one entity’s net gain with another entity’s gross revenues, e.g., Toyota’s net profit with General Motors’ sales revenues.

To compare apples with apples, I was immediately curious to know what the growth in wage earners’ monetary earnings had been between 2000 and 2006. To find the answer, I turned to the Survey of Current Business, which is the leading source of statistics on national income, wages, and profits, and gross domestic product. Page D 15 of the January 2007 issue of that publication reports total annual compensation of employees as $7524.4 billion as of the 3rd quarter of 2006, which is the most recent quarter for which data have been published.

At the same time, page 197 of the August 2005 issue of the Survey of Current Business reports total compensation of employees as $5837.4 billion as of the 3rd quarter of 2000. Subtracting this number from the total compensation of employees in 2006 gives a difference of $1687.0 billion. If this, apples-to-apples number is compared with the alleged $36 billion to $44 billion of Wall Street bonuses, it is 38 to 47 times larger, not half as large.

But what about the growth in wage earners’ real earnings, their earnings adjusted for the rise in prices? Might that not turn out to be a mere $15.4 billion, as alleged by Mr. Herbert? The answer is no, far from it.

To calculate the change in real earnings, it’s necessary to allow for the rise in prices between 2000 and 2006. According to the Bureau of Labor Statistics, which is the source of the data, the Consumer Price Index for Urban Wage Earners and Clerical Workers stood at 168.9 for 2000 and at 196.8 as of November of 2006, the most recent month for which data are available. This is an increase of 17 percent. If this rise in prices is applied to the employee compensation of $5837.4 billion in 2000, that number is raised to $6801.7 billion. The difference between this inflation-adjusted figure and 2006’s total employee compensation of $7524.4 billion is $722.7 billion. This is the rise in real total employee compensation over the period. This number is more than 47 times larger than the number alleged by Mr. Herbert. It also ranges from more than 16 to more than 20 times the Wall Street bonuses alleged by Mr. Herbert.

Mr. Herbert needs to explain how he arrived at his numbers. Until he provides a reasonable explanation, I leave it to the reader to judge his honesty and to decide whether or not and to what extent the culture of The New York Times has changed since the days of Jayson Blair, The Times' reporter who simply fabricated claims.

*****************

I turn now to The Times’ second attempt to promote the doctrine of class warfare. This occurs in an article which appeared on the same day titled “[Bush] Tax Cuts Offer Most for Very Rich, Study Says.” (“Bush” is in brackets because it appeared only in the title of the print edition of the article.)

The article opens in a way that easily suggests that while tax rates at the very top are being dramatically reduced, they are actually being increased for middle-class taxpayers.

WASHINGTON, Jan. 7 — Families earning more than $1 million a year saw their federal tax rates drop more sharply than any group in the country as a result of President Bush’s tax cuts, according to a new Congressional study.

The study, by the nonpartisan Congressional Budget Office, also shows that tax rates for middle-income earners edged up in 2004, the most recent year for which data was available, while rates for people at the very top continued to decline.

If one reads the article very carefully, from beginning to end, one learns that what is actually being complained about is merely the fact that the tax rate of the top 1 percent of taxpayers was reduced by a larger number of percentage points than the tax rate of middle-income tax payers. One also learns that the rise in the tax rate on the middle class, so prominently featured by The Times, was a very minor one that took place in the course of a four-year sustained decline in tax rates on the middle class amounting to more than 40 percent. In the article’s own words:

Families in the middle fifth of annual earnings, who had average incomes of $56,200 in 2004, saw their average effective tax rate edge down to 2.9 percent in 2004 from 5 percent in 2000.… (My italics.)

It may have escaped The Times’ reporter, and his editor, but 2.9 percent is less than 60 percent of 5 percent, which implies a reduction in middle-class tax rates of more than 40 percent. This is a decrease, relatively speaking, compared to what the rate was in 2000, a huge decrease. It is not an increase. This decrease deserves to be featured, not presented as the very opposite of itself.

The article goes on to complain that

Households in the top 1 percent of earnings, which had an average income of $1.25 million, saw their effective individual tax rates drop to 19.6 percent in 2004 from 24.2 percent in 2000. The rate cut was twice as deep as for middle-income families.…

What is allegedly unfair here is that while the tax rate of the top 1 percent falls by 4.6 percentage points from 24.2 percent to 19.6 percent, the tax rate on the middle income tax payers falls only by 2.1 percentage points from 5 percent to 2.9 percent. Not only does The Times’ reporter, and his editor, choose to ignore the very substantial, more than 40 percent reduction in middle-class tax rates from 2000 to 2004, but also to completely ignore the fact that relatively speaking the reduction in rates on the top 1 percent was far less than the reduction on the middle class. A tax rate that is still 19.6 percent is approximately 81 percent of a tax rate of 24.2 percent. Thus, relatively speaking, while the income tax rate on the middle class fell by more than 40 percent, it fell by less than 20 percent on the top 1 percent of taxpayers.

Apparently, the only thing that would satisfy The Times (and the authors of the “nonpartisan” Congressional Budget Office study) would be if the tax rate on both groups were reduced by the same number of percentage points. In that case, the middle income tax payers would pay a tax rate of only .4 percent, while the top 1 percent paid 19.6 percent.

Such logic implies that the elimination of the income tax can simply never be fair, unless by some magical means it could be accompanied by the ex nihilo creation of a correspondingly large subsidy for everyone else. Thus if the income tax paid by the middle class were .4 percent, while the tax rate on the top 1 percent of taxpayers were 19.6 percent, fairness would allegedly require that reduction of the 19.6 percent rate to zero be accompanied by the subtraction of 19.6 percentage points from .4 percent. This, of course, would mean the creation of a negative income tax rate of 19.2 percent for the middle class. That is the logic of The New York Times.

The Times and its reporters and editors regard the doctrine of egalitarianism as an axiomatic truth and insinuate it at every turn in all aspects of the newspaper. With respect to egalitarianism and all that goes with it, there is no distinction between news column and editorial at The New York Times. Apart from such features as classified advertising, the entire paper is one huge, day-in and day-out editorial for egalitarianism, collectivism, and Marxism.

When one reads The New York Times, one should know what one is getting. It is not unvarnished news, but the news as seen through the lens of a distinct philosophical and political doctrine, a doctrine that is hostile to the freedom, prosperity, and happiness of the individual, and thus to the foundations of the United States.


This article is copyright © 2007, by George Reisman. Permission is hereby granted to reproduce and distribute it electronically and in print, other than as part of a book and provided that mention of the author’s web site www.capitalism.net is included. (Email notification is requested.) All other rights reserved. George Reisman is the author of Capitalism: A Treatise on Economics (Ottawa, Illinois: Jameson Books, 1996) and is Pepperdine University Professor Emeritus of Economics.

 

Saturday, January 06, 2007

The New York Times must have a guilty conscience about the continuous distortions of the news that appear in its pages. Evidence of this guilt is provided everyday in The Times’ claim that its “news and editorial departments do not coordinate coverage and maintain a strict separation in staff and management.”

That claim is necessary only because The Times has become sensitive about the matter. And with good reason. Because even though there may not be formal meetings, strategy sessions, and the like to coordinate its news reporting with its leftist editorial slant, that leftist slant nevertheless very definitely does permeate its reporting.

Perhaps it’s the result simply of the fact that The Times’ editorial writers and its reporters were all educated in the same kind of universities, all promoting the same leftist ideas in economics, politics, history, and the various branches of philosophy. Whatever the explanation, the paper’s editorial writers and reporters consistently come at things from the same perspective and, with only occasional exceptions, end up pushing the same party line.

A good example of this appears in today’s (January 6, 2007) edition. On the first page of the business section, there is an article titled “The Land of Rising Conservation.” The article is a pure puff piece for environmentalism/conservationism. Its theme is that Japan is the model country of energy conservation, pointing the way for the United States on the basis of the use of the latest technology. Indeed, the subtitle of the article, in the print edition, is “Japan Offers a Lesson in Using Technology to Lessen Energy Consumption.” A leading illustration of this technology is an alleged futuristic “home fuel cell, a machine as large and quiet as a filing cabinet that…turns hydrogen into electricity and cold water into hot—at a fraction of regular utility costs.”

The article compares Japan with the United States in terms of annual energy consumption per home and trumpets the fact that in Japan’s it is less than half of that in the United States. It also declares that while Japan’s “population and economy are each about 40 percent as large as that of the United States, yet in 2004 it consumed less than a quarter as much energy as America did, according to the International Energy Agency, which is based in Paris.”

The article credits Japan’s superiority in “energy efficiency” to the “guiding hand of government,” which has forced “households and companies to conserve by raising the cost of gasoline and electricity far above global levels. Taxes and price controls make a gallon of gasoline in Japan currently cost about $5.20, twice America’s more market-based prices.” The same relationship apparently applies to energy prices in general. An advisor to the Japanese Parliament is favorably quoted as saying, “Japan has taught itself how to survive with energy prices that are twice as high as everywhere else.” The sharply higher energy prices, the article explains, are the source of tax revenues, which “[t]he government in turn has used…to help Japan seize the lead in renewable energies like solar power, and more recently home fuel cells.”

Despite The Times’ and its reporter’s obvious enthusiasm for the Japanese government’s energy policies, a careful, critical reading of the article results in a very different kind of appraisal. (Unfortunately, such a reading is not likely to be performed by many of The Times’ readers.)

It turns out that that futuristic home fuel cell, that allegedly operates “at a fraction of regular utility costs,” requires a government “subsidy of about $51,000” per unit. This is what makes possible its purchase “for about $9,000, far below production cost.” (I hope I will be forgiven for failing to see the intelligence of a policy that makes people pay twice the price for energy in order to provide funds to make possible the production of electricity at a sharply higher cost.)

But there is more. It also turns out such technological advances are only part of the story. There is also a major “human interest”/cultural angle that contributes to Japan’s "superiority" in “energy efficiency.” This centers on a Mr. Kimura and his family. (He owns the futuristic home fuel cell that a Times’ photograph shows standing in front of his house.) Without any apparent awareness of the significance of the information being revealed and certainly without any embarrassment about it, The Times’ reporter writes this about the subject of his human interest.

Mr. Kimura says he, his wife, and two teenage children all take turns bathing in the same water, a common practice here. Afterward, the still-warm water is sucked through a rubber tube into the nearby washing machine to clean clothes. Wet laundry is hung outside to dry or under a heat lamp in the bathroom. The different approach is also apparent in the layout of Mr. Kimura’s home, which at 1,188 square feet is about the average size of a house in Japan but only about half as big as the average American one. The rooms are also small, making them easier to heat or cool. The largest is the living room, which is about the size of an American bedroom.

During winter, the entire family, including the miniature dachshund, gathers here, which is often the only room heated. Like most Japanese homes, Mr. Kimura’s does not have central heating. The hallways, stairwell and bathrooms are left cold. The three bedrooms have wall-mounted heaters, which are used only when the rooms are occupied, and switched off at night.

The living room is kept toasty by hot water running through pipes under the floor. Mr. Kimura says such ambient heat saves money. He says the energy bill for his home is about 20,000 yen ($168) a month. Central heating alone would easily double or triple his energy bill, he says.

“Central heating is just too extravagant,” says Mr. Kimura, who is solidly middle class.

The government has tried to foster a culture of conservation with regular campaigns like this winter’s Warm Biz, a call to businesspeople to don sweaters and long johns under their gray suits so that office thermostats could be set lower.

So there you have it: the Green party line presenting poverty as technologically advanced, as the wave of the future, and as morally virtuous. We can supposedly all look forward to the day when we will be as advanced as the Japanese and energy will cost us twice as much as it now does. When we too will be unable to afford central heating and will have to live in houses half their present size. When we will have to gather our entire family into the one heated room in the house. When we will have to follow one another into the same bathwater, and then use that bathwater to wash our clothes, which we will have to dry outdoors, as our great-grandparents did. When we will have to wear long underwear and sweaters to keep warm indoors. What a glorious, green future! What green slime The Times pours on the readers of its alleged news reports.


This article is copyright © 2007, by George Reisman. Permission is hereby granted to reproduce and distribute it electronically and in print, other than as part of a book and provided that mention of the author’s web site www.capitalism.net is included. (Email notification is requested.) All other rights reserved. George Reisman is the author of Capitalism: A Treatise on Economics (Ottawa, Illinois: Jameson Books, 1996) and is Pepperdine University Professor Emeritus of Economics.