Sunday, April 20, 2014

a common mistake with minimum wage

Seth Godin, whom I think highly of and enjoy reading, makes a mistake about minimum wage in his recent post here:

The mistake is in reference to what Henry Ford doubling the wage in his factories. This example is frequently brought out by supporters of the minimum wage. Yes, Henry Ford increased the wages in his factories to $5/day when other factories were paying well below that wage. Yes, he made profits. And yes, it was probably a good business decision.

That doesn't mean that raising wages in all places at all times is therefore justified - even minimum wages.

Why Ford raised the wages in his factories is up for debate - there are a number of explanations - reduce absenteeism, get better compliance, increase access to the best labor, etc. All of these are probably true in some shape or form. Ford might even have thought of all  them before he made the decision, and maybe he thought of some more. Or maybe he thought of some of them, and the others were a surprise. The great thing about markets is, it doesn't matter. What matters is it worked, and Ford was successful.

The more interesting question to ask is why Ford was able to raise wages and he didn't go out of business. Now we're not asking questions about motives which happen inside someone's head, and they can make them up ex post, as well. The interesting question about Ford not going bankrupt looks at the fact that it worked.

So why did it work? And why didn't anyone else do it first? Ford wasn't especially humanitarian from what I know about him. I'll postulate this, without having done the research on his competition - that Ford's new assembly line system was a fundamentally different way of organizing work. It resulted in a much higher return on labor - what economists call the "marginal product of labor" - or the additional units of product that can be made by adding one more worker to the factory. Ford's innovations with assembly line production simultaneously reduced the need for workers, and made the workers remaining more valuable. When the remaining workers add more value to your process, not only can you pay them more, you almost certainly have to pay them more. You have to compete for higher quality workers, and these workers will have opportunities to earn good wages in other places - so you will have to pay them more to get them to work for you.

Ford's assembly line innovation, as primitive as it sounds to us, was cutting edge technology at the turn of the last century. Ford needed a workforce of compliant, obedient workers who could follow instructions. As Seth talks about here, that workforce was just being dreamed up as a product of our school system. It wasn't the dominant product of our culture at that time. So Ford would have had to pay more to get those kinds of people.

There was a difference between Ford's factories and the factories of his competitors. The competition didn't operate with the same business model as Ford - they still operated with a craft, one-off mentality that allowed for a lot of individual initiative and a high variance in worker productivity. Ford needed a very specific kind of worker, and there probably weren't that many of them. He also had to pay a lot to get people to give up the autonomy they were used to having under the craft model. But the key difference was under the craft model, you employed a lot of labor with a low marginal product. When the labor you employ has a low marginal product, you don't pay the laborers much (look at all the places where American companies have off-shored to - the factories have worker to capital ratios many times what you see in America - this is because they emply technology that has a low marginal product of labor).

A similar dichotomy is happening today in the United States. Take Wal-Mart and Costco. Wal-Mart pays slightly over minimum wage in most of its stores, while Costco plays about double minimum wage. Let's not pretend that Costco's managers are nicer and that's why they pay more. If that were true, shareholders would dump Costco. What is true is Costco employs a business model that has a higher marginal product of labor than Wal-Mart, much like Ford's assembly line vs. his competitors. McArdle has a nice post about this here.

Pointing to Ford's $5/day policy and saying it worked then, it should work now, I believe is inaccurate. It worked for Ford for what I suspect were a very specific set of circumstances. If we want our workers to earn more than $7.25/hour, we have to 1) educate them in the way Seth has proposed to make them more valuable, and 2) we have to encourage the creation of jobs that have higher marginal product of labor levels, into which our better educated work force can fit.

Wal-Mart has a business model based on low wages because it knows there are people who don't have the education and skills to fill higher marginal product roles. Wal-Mart's business model, like Ford's a hundred years ago, is a response to the labor market, not the other way around.

an app for misanthropes

As much of a misanthrope as I can sometimes be (I got out of my way to go to the grocery store with the self-checkouts), I am glad I don't have a use for this particular app:

There is no shortage of social media apps out there that will loudly broadcast to everyone where you are at every second of the day. Rarer is the app that exists to obfuscate you. This, though, is the goal of Cloak, a new app that wants to keep other people from being able to find you.

Saturday, April 19, 2014

lessons for business from Vonnegut

two things become apparent. The first is certainly that so many successful business stories follow patterns embedded in Western civilization’s most primal literary conventions. It’s easy to see why marshalling data to tell one of these kinds of stories – rags turning into riches, mistakes rectified, challenges overcome, the right resources and the right contacts saving the day — would be so compelling. And there’s probably an argument here for reading more fiction, to give John Keating his due.
The second is that Vonnegut’s delivery matters as much as his ideas. His timing is perfect.  His language is concrete and unexpected. He’s showing you the simplicity that underlies apparent complexity – that’s what data are so good at doing. But he’s just as concerned with making sure you’re paying attention — since no one is persuaded by something they don’t remember.
rest here:

Holy Saturday (night)

Sitting out this evening.

Kandie and I grilled, and then ate out on the deck. And then after that, I didn't find myself wanting to get up.

The layers of the mind run like simultaneous processors, and I found the conscious portion of my mind trying to make up stories about why I found myself planted and looking at the sky. I'm actually writing this on my laptop right now, sitting in the same place. And I still don't really know why I'm rooted here.

The breeze is moving gently, and the last light of the day is fading.

I just finished listening to a Moth story about a man who forgave the man who murdered his adopted daughter ( ). It seems an appropriate story to listen to on Holy Saturday.

I am reflecting on the nature of forgiveness. The saying attributed to the Buddha, "Holding on to anger is like drinking poison and expecting the other person to die." I need to work on this more.

I think there is something my subconscious wants to express, but it is pre-verbal. So I probably won't be able to pin it down tonight. Something rumbling beneath the surface.

excellent essay on negative freedom

I have been mulling a book for some time and met with frustration over the re-defining of "freedom as capabilities" by economists such as Arartya Sen. I find this "approach" dangerous to our common understanding of freedom, as it gives permission to a virtually unlimited, unrestrained government.

One of the critics quoted Isaiah Berlin as defining liberty as limited to freedom from specific interference. I googled Berlin's essay and of course this is an inaccurate, self-serving portrayal. Berlin's essay is actually quite excellent, and obviously he does not limit liberty to freedom from a specific act of interference, but a condition of freedom from coercion.

Political liberty in this sense is simply the area within which a man can do what he wants. If I am prevented by other persons from doing what I want I am to that degree unfree; and if the area within which I can do what I want is contracted by other men beyond a certain minimum, I can be described as being coerced, or, it may be, enslaved. Coercion is not, however, a term that covers every form of inability. If I say that I am unable to jump more than 10 feet in the air, or cannot read because I am blind, or cannot understand the darker pages of Hegel, it would be eccentric to say that I am to that degree en slaved or coerced. Coercion implies the deliberate interference of other human beings within the area in which I wish to act. You lack political liberty or freedom only if you are prevented from attaining your goal by human beings. Mere incapacity to attain your goal is not lack of political freedom. This is brought out by the use of such modern expressions as 'economic freedom' and its counterpart, 'economic slavery'. It is argued, very plausibly, that if a man is too poor to afford something on which there is no legal ban-- a loaf of bread, a journey round the world, recourse to the law courts-- he is as little free to have it as he would be if it me from running, this inability would not naturally be described as a lack of freedom at all, least of all political freedom. It is only because I believe that my inability to get what I want is due to the fact that other human beings have made arrangements where by I am, whereas others are not, prevented from having enough money with which to pay for it, that I think myself a victim of coercion or slavery. In other words, this use of the term depends on a particular social and economic theory about the causes of my poverty or weakness. If my lack of means is due to my lack of mental or physical capacity, then I begin to speak of being deprived of freedom (and not simply of poverty) only if I accept the theory.

Sen's "freedom as capabilities" approach is precisely the idea that Berlin is objecting to. Freedom as capabilities declares someone who cannot jump 10 feet into the air "unfree". While that may be true in some sense, it is not true in the political sense. The person is perfectly free in the political sense, and therefore has no right to demand compensation from his neighbors for his lack of ability.

There is a difference between what a person has the right to demand from us (his/her political rights), and what we have a moral obligation to provide him/her. We might say that all political rights are also moral, but there is a space outside of political rights where morality is not law, but rather goodness, and cannot be compelled with justice. Strict moral obligations cannot be compelled. Failure to obey them may make us despicable, but not punishable.

The rest of Berlin's essay is here.

Monday, April 14, 2014

pumkin mezze lune

mmm. like ravioli. filled with creamy pumpkin. boiled, then briefly fried in a little olive oil and sprinkled with allspice and nutmeg.

Sunday, April 13, 2014

baked banana

One of the treats I allowed myself on the $3 Diet was baked bananas. Today I made myself a baked banana with mini-marshmallows.

baked banana with minimarshmallows

A fun little snack. Banana - 90 cal, Marshmallows - 30 cal.

Slice banana, measure out 30g of mashmallows, bake 10 minutes at 350.