The broader effects of unpaid internships are (a) a tendency for employers to take advantage of young labor by offering the currency of experience in lieu of actual currency, and (b) a widening of the social inequality gap as lower-income students are implicitly barred from this so-called "educational" experience, which is their gateway to full-employment in the field of their choosing.

But not every mutually beneficial relationship should be legal, and not every one is. An easy example is: It is mutually beneficial for a 17-year old to offer money to a bartender in exchange for a vodka shot, but we have collectively decided that this sort of thing ought not to happen, because we don't want to live with its broader effects.

He's right that students from lower-incomes are at a disadvantage. I was one of those. As far as I knew, unpaid internships weren't even around, or at least weren't common, when I was an undergrad between 1967 and 1970. But even if they had been, I wouldn't have taken one because I needed to make money every summer.

But I wouldn't have regarded it as immoral for kids from higher-income families to work for free for employers who wanted their services. And I certainly wouldn't have wanted a government to threaten people with fines and, ultimately, harsher penalties, for having unpaid interns.

Mr. Thompson says that if "internships are indistinguishable from education," then it's "perfectly permissible that they be unpaid." It seems as if we're getting somewhere. It seems that it would follow that if they're better than education, then for sure it's permissible that they be unpaid. But after admitting that some internships are better than college, he writes, "that's not a good reason to deny millions of workers salaries just because they're young." That's confused thinking. The argument he was addressing was whether it's permissible not to pay because of internships' educational value. But then he switches reasons in mid-sentence, saying that it's "just because they're young." But it wasn't just because they're young. It was because employers are getting something in return.

A little economics would have gone a long way in helping Mr. Thompson, who, according to the bio on the Atlantic web site, "oversees business coverage for the website." Consider this excerpt from his case:

Plenty of entry-level positions better prepare people for work than college. If it is relevant that an unpaid internship is "useful", does it follow that only useless internships should have salaries? Of course not. Utility and salary have nothing to do with one another.

First, The wages of labour vary with the ease or hardship, the cleanliness or dirtiness, the honourableness or dishonourableness of the employment. Thus in most places, take the year round, a journeyman taylor earns less than a journeyman weaver. His work is much easier. A journeyman weaver earns less than a journeyman smith. His work is not always easier, but it is much cleanlier. A journeyman blacksmith, though an artificer, seldom earns so much in twelve hours as a collier, who is only a labourer, does in eight. His work is not quite so dirty, is less dangerous, and is carried on in day-light, and above ground. Honour makes a great part of the reward of all honourable professions. I.10.5

Is there a way around this so that more young people from low-income families could find internships? Yes. Allow them to be paid internships but allow the pay to be somewhere between 0 and the minimum wage. As I wrote in 2011, "The government is saying, in effect, you may pay $7.25 an hour or more or you may pay 0 an hour but don't let me catch you paying more than 0 and less than $7.25."

If an internship paid, say, $4.00 an hour, then some kids from lower-income families could more easily afford to take such jobs. That would solve some of the problem that Mr. Thompson identifies. But it would do so with a reduction in coercion, not the added coercion that he seems to advocate.

I think that when pundits criticize someone from their own team, it is usually complaining that the politician is too moderate or too ineffectual. That is, leftwing pundits criticize President Obama either for not following policies that are further to the left or for not championing left-oriented policies more strongly. Similarly, pundits on the right criticized President Bush for not following policies that were further to the right or for doing a poor job of articulating right-wing philosophy.

These sorts of criticisms are difficult for the other side to notice. It may be hard for someone on the right to think it is a big deal when a liberal politician is being criticized from the left. And those on the left do not always notice when a conservative politician is being criticized from the right. I mean, you may notice such a criticism, but you don't "count it" as a criticism, because it's the opposite of the criticism that you would make from the other side.

Of course, what would really be interesting would be a pundit on the left criticizing a liberal politician's liberal policies, or a pundit on the right criticizing a conservative politician's conservative policies. I believe those instances are relatively rare. One example might be the Washington Post editorial page, which has criticized the domination of the teachers' unions in Maryland politics. Another example would be conservative pundits who have criticized Grover Norquist for his strict stance against any tax increases.

When large banks have resources, politicians will be tempted to treat them as piñatas, taking whacks at them in order to extract money to distribute to constituents (see the recent "foreclosure settlement," or the pressure being placed on Freddie Mac and Fannie Mae to write down principal on loans). When large banks get in trouble, politicians will be tempted to bail them out.

See also Mike Konczal (pointer from Mark Thoma.)

The Kim family has ruled North Korea for three generations.  Doesn't the stationary bandit model imply that the country should be prospering?  If so, what's wrong with the stationary bandit model?  If not, why not?

Every March I have my annual meeting with my tax accountant. The meeting lasts 30 minutes. In the first 15, we go over my numbers and in the last 15 he tells me stories about various investments he has been in, some of which made him a lot of money and some of which lost him a lot. I've noticed that one thing almost all his losers have in common is the absence of due diligence on his part. I always find the last 15 minutes exhilarating. Here's a guy who has an Associate degree from the local community college, is a few years younger than me, and has a net worth in the 8 figures. Talking to him is far more exciting to me than talking to the average academic economist.

So each year I tell him that I would like to take him out for a nice meal and pick his brain. Each year I don't. This morning I did: the only time he could make was breakfast.

He told me stories about various people he's known over the years and has noticed a pattern in those who build a nice fortune and those who don't. He did so this morning and said that there are three key elements that all the successful ones had in common. "I know one," I said, "diversification."

"No," he said, "that helps, but that's not it." The three he named are:
(1) Don't have a lot of overhead. Don't commit to a large rent. Don't have a large mortgage or, if you do, pay it down quickly.
(2) Be "footloose." That is, be able to adjust quickly when things go bad. So, for example, he told the story of a friend who was doing well but then had his rent on a municipal property jacked up by a local government that saw that he was doing well. His friend didn't renew the lease but went elsewhere quickly.
(3) Take advantage of--and maximize if at all possible--all of the tax-advantaged ways of saving that you have access to: max your 401(k), max your Roth, etc. He told of a man who worked for a large company and who, over his working life, maxed his 401(k) and now has $1.4 million in that account alone.

His stories and thinking reminded me of the spirit and, to some extent, the letter of Dwight R. Lee's and Richard B. McKenzie's excellent book, Getting Rich in America: 8 Simple Rules for Building a Fortune and a Satisfying Life. As I said in my review of the book in the Wall Street Journal, their book "is the how-to handbook for becoming the millionaire next door."

I'm willing to bet--call it a hunch--that most people, if asked to name someone who they think is a humanitarian, would not put a tax accountant who makes a lot of money high on their list. But I've gotten to know this one over about 25 years and, with his careful thinking about how to make and keep wealth, thinking that he seems willing to share with those who will listen, my accountant is a true humanitarian.

UPDATE
Here is a note from my tax accountant referred to above, after he saw this post:
"One correction. I never did get my AA. I dropped out to pursue my golf. Never made it as a pro. Enjoyed our breakfast."

This couple bought their Reno home in June 1988 for $127,000. Their home is currently valued at $100,000. They currently have a mortgage worth $168,000. At first blush, this seems strange. Assuming a normal down payment and paying off the mortgage for 14 years, shouldn't the current mortgage be much lower? Indeed, should it not be lower than $100,000 (in which case, they would not be underwater)?

Are the Kellers "responsible" homeowners? I am not sure that anyone is in a position to pass judgement on how they chose to manage their wealth. I am happy to label them "responsible" homeowners. I'm just not sure why society should necessarily be obligated, in this case, to enact a wealth transfer in their direction (away, for example, from yours truly, who foolishly chose to rent a small town home 2000-2009, instead of living the American dream).

1. When I graduated in 1998, a lot of high-test hiring companies like finance and consulting did ask for SAT scores.

[...]

4. HR departments hammer home that you're not supposed to make decisions based on information you're not supposed to know.

5. I have seen something similar happen, where applicants who were disabled would volunteer information about their condition that suggested they would not need any more sick time or "accommodations" than a non-disabled person... Anecdotally it tended to benefit the discloser.

My own guess is that the politics of passing state-level occupational licensing laws is driven by three factors: 1) lobbying by those who already work in the occupation to limit competition; 2) passing laws in response to wildly unrepresentative anecdotes of terrible or dangerous service; and 3) the tendency when setting standards to feel like more is better. But in a U.S. economy which is hurting for job creation, especially jobs for low-income workers, states should be seriously rethinking many of their occupational licensing rules. Many would be better-replaced with lower standards, certification rather than licenses, or even no licenses at all.

His Background

I had spent a couple of years in Stanford's Ph.D. program, before dropping out with a master's degree, and I had been working for a couple of years at the San Jose Mercury News as an editorial writer and columnist.

Superfluous Fluff

Some economists like to believe (although this belief has blessedly faded in recent decades) that economics is an edifice built on the rocks of mathematical theory and statistical empiricism, and everything else is superfluous fluff. McCloskey (1983) thoroughly strafed that conceit, pointing out in "The Rhetoric of Economics" that the research and analysis of economists is built on uncertain and subjective judgments, and often uses, among its rhetorical tools, analogy and metaphor, appeals to authority and to commonsense intuition, and the use of "toy models" counterbalanced with the choice of supposedly illustrative real-world episodes.

Introductions of papers are worth four times as much effort as they usually receive. The opening paragraph of each main section of a paper is worth three times as much effort as it usually receives. Conclusions are worth twice as much effort as they usually receive.

Barney Kilgore, who was editor of the Wall Street Journal during its time its circulation expanded dramatically in the 1950s and 1960s, used to post a motto in his offifice that would terrify any editor (as quoted in Crovitz 2009): "The easiest thing in the world for a reader to do is to stop reading." An editor can help here, by serving as a proxy for future readers.

Intensive Editing

For many JEP authors, my extremely hands-on editing comes as a surprise. After all, most of those who are listed as editors of journals or conference volumes don't actually "edit" in the commonplace meaning of the term.

Our God-given Right to Write Badly

Taylor has a great quote from Donald McCloskey in 1985 that expresses what I think most economists think about writing and what I'm sure was my attitude circa 1979:

Most people who write a lot, as do economists, have an amateurish attitude toward writing. Economists do not mind criticism of their facts or their formalisms, because they have been trained in these to take criticism, and to dish it out. Style in writing is another matter entirely. They regard criticism of their drafts the way a man unfamiliar with ideas regards criticism of his ideas: as an assault. . . . The economic writer, therefore, cherishes his habits of style as matters God-given, or at the least highly personal. One cannot change one's body-type or basic character, and it is offensive for some creep to criticize them . . .

How the Economists Took Feedback

When you deal with academics, you aren't necessarily working with a group of great team players. However, my experience in editing economists over the last quarter century has been overwhelmingly positive, and certainly has not borne out fears of an inevitable clash between authors and editors. With remarkably few exceptions, JEP authors have been receptive, respectful, and even on occasion grateful for our comments and my detailed editing. They often say that it was a pleasure to receive constructive feedback--which I interpret as a not-so-veiled comment on the editorial feedback they are accustomed to receiving.

The Importance of Clear Writing

One vision of "knowledge" is that it all appears in the specialized literature, and dissemination of that knowledge--whether through JEP, policy reports, articles in the popular press, teaching, or textbooks--cannot add to knowledge. However, I believe that knowledge is multidimensional: for example, as ideas and applications are applied and considered and explained in various contexts, new strengths and weaknesses are ever-emerging. One of the nicest compliments our JEP editorial process ever received was from a prominent author who sent us a first draft that, by JEP standards, was overly technical. We pushed him to scale back the algebra and to explain in words. With his revision, he sent along a note saying as he had worked to explain the material in a way appropriate for JEP, he had also come to a better understanding of his original technical demonstration.
Knowledge doesn't end with the QED at the end of a proof or with the publication of a regression table. An editing process that produces an accessible discussion of results is part of knowledge, too.

The good news is that decolonization began a process of leveling the playing field, with rapidly climbing and converging indicators of health and education worldwide. Thanks to the Flynn effect, IQs are doubtless on a path of convergence as well, and the poisonous idiocy of genetic explanations for wealth and poverty will soon lose what little empirical support they might appear to have today.

Today Bob Murphy published an excellent critique of Nordhaus's piece. The whole thing is worth reading. I'll hit some highlights.

1. The last 10 years. Murphy catches Nordhaus in a rhetorical sleight-of-hand. Nordhaus had written:

The first claim [of the 16 scientists] is that the planet is not warming. More precisely, "Perhaps the most inconvenient fact is the lack of global warming for well over 10 years now."

Notice the rhetorical sleight-of-hand: Nordhaus attributes the claim that "the planet is not warming" to his critics, and then at least has the courtesy to follow-up with their actual statement that "the most inconvenient fact is the lack of global warming for well over 10 years now."

Those are different statements. Yes, it's easy to knock down opponents when Nordhaus is allowed to change their position. The 16 signatories to the WSJ piece never claimed that "the planet is not warming," relative to preindustrial times. No, what the 16 signatories to the WSJ piece claimed--and which is true, at least depending on which data set one uses--is that there has been no global warming in well over the last ten years. Indeed, look at Nordhaus' own graph: It shows that the current temperature deviation (of about 0.8 degrees Celsius) is the same value as it was back in the late 1990s. And yet Nordhaus somehow thinks this chart should embarrass his opponents.

2. Whether actual global warming has been less than what the models predicted.

Notice what Nordhaus has done: When faced with a skeptic challenge that the climate models predict more warming than has actually occurred, Nordhaus retreated to defending the view that the prevailing suite of climate models explains past temperature movements better when they attribute a sizable impact to human activities, than if these computer models are run with natural influences ("forcings") alone.

These are entirely different claims. The WSJ scientists were not claiming that anthropogenic changes to the atmospheric composition have not given rise to an increase in the global average temperature, but that the increase has been less (considerably so) than that produced by the standard collection of climate models. It should come as little surprise that the climate models do not well capture the actual climate, because the climate is fiendishly complex, incompletely understood, and hence difficult to model. Consequently, it is reckless to go forth with trillion-dollar taxation schemes on the basis of our limited understanding. Until models are able to more accurately replicate the climate behavior of the observable past, it is foolish to think that they will produce reliable climate projections of an uncertain future.

Nordhaus had written:

The question here is whether emissions of CO2 and other greenhouse gases will cause net damages, now and in the future. This question has been studied extensively. The most recent thorough survey by the leading scholar in this field, Richard Tol, finds a wide range of damages, particularly if warming is greater than 2 degrees Centigrade. Major areas of concern are sea-level rise, more intense hurricanes, losses of species and ecosystems, acidification of the oceans, as well as threats to the natural and cultural heritage of the planet.

As Tol's diagram quite clearly indicates, the consensus of economic studies finds that global warming would be on net beneficial to human welfare, at least through 2C degrees of warming (and this is relative to the current baseline, not to preindustrial times). This is not at all what the innocent reader would have taken away from Nordhaus' description of Tol's findings.

On this, Murphy quotes an earlier piece he wrote on Nordhaus's DICE model:
The 2007 DICE model contains simulations not just of the baseline (no controls) and the optimal carbon tax scenarios, but of many other policies as well. These calculations show that the dangers of an overly ambitious or inefficiently structured policy can swamp the potential benefits of a perfectly calibrated and efficiently targeted one (that is, the optimal carbon tax scenario). As table 4 indicates, Nordhaus's optimal plan yields net benefits of approximately $3 trillion (consisting of $5 trillion in reduced climatic damages and $2 trillion of abatement costs). Yet some of the other popular proposals have abatement costs that exceed their benefits. The worst is Gore's 2007 proposal to reduce CO2 emissions 90 percent by 2050; DICE 2007 estimated that Gore's plan would make the world more than $21 trillion poorer than it would be if there were no controls on carbon.

Although leading climate economist William Nordhaus tries to cast himself as the messenger of objective science, his attempt to rebut the "global warming skeptics" is itself filled with misleading arguments. The actual situation is that the physical climate models have indeed predicted more warming than has actually occurred, while the economics literature casts serious doubts on the case for immediate government mitigation efforts.

One point Murphy did not make but that is worth noting is that the benefits of climate control, on Nordhaus's own figures, are not very large. The optimal policy--for obvious reasons not likely to occur--is calculated to produce a net benefit of about three trillion dollars. That sounds like a lot of money--until one recognizes that it is spread over the entire world and about ninety years. That makes the annual benefit of the ideal policy about 33 billion dollar a year--roughly one percent of the current U.S. federal budget or one tenth of a percent of current world income.

Which suggests that, with a less ideal and more realistic policy, net costs are likely to be larger than net benefits.

Consider further that the privately owned Facebook restricts user liberty more than any fully-owned public university website. Therefore it's not as simple as private-sector = more liberty, public sector = less. Consider further that Facebook is openly contemptuous of "citizen" privacy or the implicit right to the property of your personal information than the U.S. Census Bureau.

Later in his comment, he wrote:

Point being, I don't really care who's infringing liberties -- infringement by government vs. private interests is still infringement

figleaf: this comment makes me think you're a BHL! My only limit about this is that I wouldn't say its about maximizing liberty at root, but maximizing well-being. My well-being requires liberty. I imagine yours does as well. I imagine most people reading this blog are the same. But I also think some people are better off with less liberty than I would otherwise think ideal--and I would not want to make them worse off by "forcing them to be free." In any case, I completely agree that it does not matter "who's infringing liberties." We should be concerned, I think, about any accumulations of power--whether in the hands of government officials or private parties--because we should oppose any attempts to use such power to infringe on others.

figleaf is right that FB is contemptuous of privacy. I'm not sure that the U.S. Census Bureau is less contemptuous. Its handing over Census data to the Secret Service so the federal government could round up Japanese Americans and imprison them was pretty contemptuous of privacy, to put it mildly.

But let's grant, for the sake of this discussion, that FB is quite contemptuous of privacy and that the Census Bureau is less so. Here's the difference. Every single person who signs up with Facebook does so voluntarily. If FB had committed to guarding your privacy, then it would be breeching a contract by doing so. But I've never seen FB make that commitment.

The U.S. Census Bureau, by contrast, uses the threat of force to get its information. That's a pretty big difference. It's not one that I would expect, say, the New York Times, to point out. But it is a distinction that I would have expected from someone who calls himself a bleeding heart libertarian.