THE
PEOPLE’S ECONOMIST
Dr. Walter Williams
is a professor of economics at George Mason University. He is author of
more than 150 publications and six books, including
Do the Right Thing:
The People’s Economist Speaks. He makes regular radio and television
appearances, including serving as an occasional guest host for “The Rush
Limbaugh Show.” In addition, Dr. Williams writes a nationally syndicated
weekly column carried by approximately 140 newspapers and several web
sites. What follows are segments of his interview with The Investing
Revolution which aired earlier this year and is
available now in the program archives at
www.theinvestingrevolution.com.
What should the
average American need to know about economics?
There’s no free lunch.
As my colleague, Milton Friedman, used to always say, “There’s a cost to
everything and even though you may pay a zero price, that doesn’t mean
there’s a zero cost.” For example, people say there’s free public
schools, but they’re not free, they’re just zero priced. Someone has to
pay for them.
How are
Americans doing as far as economic understanding?
I
think they’re getting better and I think one of the reasons [for that]
is that increasingly, government is taking over so much of our lives and
we have to learn more about plain economics. To go about one’s
ordinary day-to-day life, one doesn’t really have to know economics. But
if that life is increasingly controlled by factors beyond that
individual’s control, I think there is a need to know more.
You recently
wrote an article entitled “The Poverty Hype.” Tell us what the hype is
about poverty.
The
Census Bureau comes out with poverty statistics now and then [that]
define poverty as a certain threshold. That threshold right now, I
believe, is somewhere around $19,000 for a family of four. But they
overstate poverty in the United States. There have been several studies
comparing the amount of money people get to the amount of money they
actually spend. One particular study and data was retrieved from the
Department of Commerce and said that for each dollar earned or received
through welfare or through work by someone defined as poor, they spent
$1.91. What that shows is there’s an underground economy working where a
lot of poor people are getting much more, considerably more, than what
they state.
There’s another aspect
to poverty and that is that in the United States, for all intents and
purposes, either on a temporal basis or a global basis, we don’t have
any poverty in our country. If you just look at some statistics, I think
62% of poor people own one car and 14% own two or more cars. Poor people
in the United States have more living space than middle class people in
Europe. Something like 90% of poor people have microwave ovens and
another high percentage have air conditioning and color television and
cell phones. If you go around the world and look at poor people in
Bangladesh or Ethiopia or the Sudan, you don’t find that kind of stuff.
Moreover, poor people have today what middle class people did not have
in 1950, 1960: microwave ovens, color televisions and a bunch of other
goods. So what we have in the United States is not any material poverty,
but plenty of poverty of the spirit.
One of the
current hot button issues is the number of manufacturing jobs leaving
the U.S. Should we be concerned about this?
We
should not be concerned at all. It’s the principle of comparative
advantage. We are richer as a nation if we get our goods at the cheapest
price possible and sometimes labor costs overseas are less than labor
costs here. We can get things produced overseas and enjoy them here at a
cheaper price.
People talk about
outsourcing and jobs going overseas but they completely ignore
insourcing, which is all the jobs coming to the United States from
foreign countries. We have pharmaceuticals from Switzerland that have
moved to the United States. We have Nissan and Toyota building factories
in the United States. The number of jobs insourced is far greater than
the number of jobs outsourced.
Here’s an example: You
are a textile worker in a factory and you have some kids. Now which
would you hope for your kids? That when they grow up they’ll be a
factory worker or when they grow up they’ll be a nurse, an accountant or
a lawyer? You’d probably wish for the latter. Jobs disappearing is a
good thing. At the turn of the century, about 38% of American workers
were working on the farm. Now, about 2% or 3% work on the farm and
clearly we’re much better off and food prices are cheaper.
Another hotly
debated topic is always the minimum wage. What can economics tell us in
this regard?
Among academic economists, somewhere between 80% or 90% say that one
effect of raising the minimum wage would be unemployment among the least
skilled worker. If you have to pay $5.15/hour (the current minimum wage)
plus mandated benefits, which are roughly 30% of the hourly wage, that’s
a $7.50/hour minimum cost to hiring somebody. So you ask, “If I must pay
$7.50 to no matter whom I hire, is it worth it for me to hire a person
who is so unfortunate so as to have skills that will enable him to only
produce $2 or $3 of value per hour?” Most employers would say that’s a
losing economic proposition and would not hire such a person. And such a
person would be low skilled. And who are the low-skilled workers in our
economy or in most economies around the world? For the most part,
they’re teenagers. Teenagers are low skilled because they lack the
maturity and experience of adults. And then in that group of teenagers
are black teenagers. They not only share the disadvantages or handicaps
of teenagers in general but they also share the disadvantage of having
attended rotten schools. So if you’re predicting the effects of the
minimum wage, consider that it’s going to discriminate against the
employment of young people in general and have a doubly negative effect
on black young people. And lo and behold, look at Department of Labor
statistics and that’s exactly what you find.
It’s also handicapping
in that the little bit of money a young person makes working for $3 or
$5 an hour is not nearly as important as other things that person gets
from early work experiences—learning to be on time, respecting the
supervisor, dressing properly—that will make him a more valuable
employee in the future. The on-the-job training is far more valuable, in
my opinion, than the little bit of wage.
Finally, based on a
Department of Labor statistic, only 3% or 4% of adults are working at
the minimum wage. So it’s the young people who will feel the major
impact of minimum wage. And then also there’s the statistic stating that
somewhere around 60% of minimum wage earners live in households where
the income is over $50,000 a year. So when people say we’re going to
raise the minimum wage to help cope with poverty, that’s utter nonsense.
Minimum wage is no poverty cure because if it were, our State Department
would just tell Bangladesh, Haiti and the Sudan, “Why don’t you just
raise your minimum wage and you’ll be rich like we are?” Of course the
average person would say that’s utter nonsense. It never works.
You have also
written quite a bit about the American system of education. Where can we
improve?
I
think the education in our government schools is an utter disgrace. I
don’t care if you’re white or black, it’s an utter disgrace. What I
think you need in education is more competition. One way of introducing
competition is to have something like a voucher or a tuition tax credit
system. Let’s say Washington DC, for example, spends roughly $14,000 per
student. Instead of giving that money to the education establishment,
they ought to create a voucher that can only be used for education and
give it to parents and let parents choose what schools they want to send
their kids to. If parents have these vouchers, you can be sure that
schools will emerge to take advantage of those vouchers.
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