Who Gets What When

I read this book and reviewed it a couple of summers ago. It’s a great book and a must read for anyone. I thought I would post this video of Professor Roth talking about his ideas while I was on vacation.  How cool would it be if you were enrolled at Stanford to be able to take a class with him?

People have lost faith in markets.  It’s very disconcerting to me.  They think markets are rigged.  I certainly agree that market structure needs attention.  Good structure underpins markets that work.  Markets that don’t have good structure eventually break down and don’t do what they are designed to do for core participants.

Capitalistic systems are based on free markets.  The old Scottish boys had it right.  Capitalism lifts people out of poverty faster than any directed centralized system.  I saw a short piece on how minimum wage doesn’t really affect people and employment.  How wrong headed it was.  The piece said that in San Francisco the restaurants that went under where the ones with poor Yelp reviews.  They postulated that the restaurant would have gone under regardless of the prevailing mandatory wage.

They are wrong.

The restaurants might have gone under because of poor quality.  But, increasing their cost of operation by government edict made them go out of business faster.  The cost/opportunity cost of making the internal business decisions to raise quality to increase business versus fold changed.

That analysis also doesn’t take into account the people that worked at the restaurants that closed.

Now they are faced with a much more difficult job market.  Restaurants that stayed in business will not be hiring workers as fast because of higher minimum wages forced on them by government edict.  They also won’t be able to get introductory jobs in another line of work because those companies are forced by government edict to pay too high of a prevailing wage.

This is where compassion translated into public policy is severely misguided.   Roth talks about that in different ways. If you listen closely, your mind on markets might change.