$1 million an hour? I quit!

This from the UPI: “A new Milken Institute study says the nation’s economy must create 2.6 million or 6 percent more low- skilled jobs in order to successfully move welfare recipients off public aid and into full-time work.”

What is the Milken Institute? It is named–no kidding– for convicted felon, swindler, and con- man Michael Milken, who amassed a crooked fortune in the junk bond business. What’s next, a Charles Manson Institute for Safe Neighborhoods? A Saddam Hussein Foundation for Democracy?

Let’s look more at this bogus gibberish the Milken boyz are trying to pass off as economics. The article (“Study: Welfare reform needs new jobs,” which hit the wires on June 23) mentions that much of the welfare crowd is so illiterate that it “can only perform the simplest tasks, such as signing their name.”

Hold on a minute. Remember our highly vaunted, Soviet-style public education system? 10 or 12 years of school just to learn how to write your name? What’s next, should we double the size of the socialist education system so after 24 years of school you can only write your three initials?

And, moving from school for a minute, everyone in the U.S. has plenty of opportunities to become literate. How about Mom, Dad, and the church? If Mom can’t teach you to read, Dad can’t either, and you can find the welfare office but not the church, what’s going on? When government has become Mommy, Daddy, and God to millions of people, one thing is for sure: You’re going to wind up with a lot more government.

Now for some economics. The premise of the piece is that higher wages will cause people to decide to work. Is that true? No, it is not true at all.

How many hours a year would you work if you made, say, $20 an hour? If you’re like most people, you’d work about 2,000 hours at that wage.

How many hours a year would you work if you made, say, $1 million an hour? Would you still waste your scant allocation of mortality in 2,000 hours of yearly toil, or would you work for a week, take your forty Mil, and move to Tahiti? I would. Absolutely. And nobody has ever accused me of being lazy.

So as you can see, there is no law that says that higher wages will induce more work. There are, as a matter of fact, two offsetting factors here. The one I just illustrated is the “income effect.” The more you make the richer you are so the less you have to work. The opposite factor is known as the “substitution effect.”
This factor recognizes that every hour of leisure is a lost hour of work and the wages resulting from that work. If you take an hour of work off to go to the beach and you make $20 an hour, then the beach time cost you a twenty-spot. But if you make, say, $150 an hour, then you’ve lost $150 for the fun in the sun. Leisure becomes more expensive for higher wage earners; goofing off is a more expensive substitute for nose-to-the-grindstone.

All sorts of complicated math enters the fray here, which is where it gets really fun. And, in the midst of it all we find that it is perfectly possible for a rational person to decide not to work at all (it’s called the “corner solution” for you economics students out there). And, in fact, as welfare rolls swell, so does the number of people living in poverty. If you pay people not to work, a lot will accept the deal. Modern economic theory predicts that.

And modern America provides some fun manifestations of economic forces. I was at ground zero during the L.A. riots, and I found the entire event hilarious, as the economic wards of the state ran amok while the soccer moms and dad-dot-coms cowered tearfully in their condos. What a hoot. If (British humorist and playwright) Oscar Wilde was an economist in modern America, we’d all be the richer for it. But he’s not, so you’re stuck with me…until I move to Tahiti.

Stephens is an economist with Stephens Corporation, a professional organization in the NMI. His column appears three time a week: Wednesday, Thursday and Friday. Mr. Stephens can be contacted via the following e-mail address:ed4Saipan@yahoo.com.