Swamponomics: Exposing This Week’s Economic Fallacies – March 31

Welcome to another installment of Swamponomics: Liberty Nation’s dive into the week’s morass of top news stories and the stream of economic fallacies that have been accepted as conventional wisdom by swamp creatures for years.

Paid Maternity Leave

Recently, Senator Mitt Romney (R-UT) and Senator Marco Rubio (R-FL) introduced the New Parents Act, a form of paid family leave that allows mothers and fathers to use a portion of their future Social Security income to fund a paid leave of up to three months. While families are not required to apply for these benefits, GOP advocates say it at least gives new parents an option. Opponents assert that this proposal will eat away at a recipient’s retirement benefits by as much as 10%. Detractors also want something like what Canada has, where you get at least nine months off and receive 55% of your earnings.

But do the public policy specifics really matter? Since President Donald Trump signed tax cuts into law, businesses have implemented a myriad of family-focused benefits, including paid leave and adoption assistance. That said, anything that is government-related will hurt female workers.

It is important to remember that employers will consider the total cost of hiring an employee and not just the nominal wage. As eminent economist Ludwig von Mises wrote, “The only relevant question for him is: What is the total price I have to expend for securing the services of this worker?”

Now, as a result (the unintended consequence), smaller businesses will hire fewer women. Or, if the company does select a female applicant, they will choose an older woman over the younger candidate. A human resources department may go the extreme and navigate the person’s social media and determine that they are lesbian, which means they might not require maternity leave (studies have found that lesbians earn more than heterosexual females).

Companies will only hire workers if they can produce more than what they would cost the firm. Is the employee worth it? She might be, but then there is the uncertainty surrounding the length of her tenure. What if she reports that she is taking a leave of absence after only six months on the job? This will require the employer to look for someone else to fill in for her, meaning the company needs to allocate funds to advertising, interviewing, training, paperwork, and everything else involved with hiring a worker.

Ultimately, the purpose of these policies is to make life more affordable for families. The best ways to achieve this would be to deregulate child care, slash taxes, and remove state mandates.

MLB Salaries

Throughout the entire 2018-2019 MLB offseason, it was contended that owners are not spending on players because they’re greedy and they’re colluding. Indeed. some of the biggest free agents on the market were not signed until a few weeks before the season began, and dozens of other veterans were still not on a team by the time spring training began. Also, according to the Associated Press, MLB’s average salary was $4.36 million, down from $4.41 million last season.

Interestingly, some of the biggest contracts in baseball history occurred this year: Manny Machado’s $300 million, Bryce Harper’s $330 million, Nolan Arenado’s $260 million, and Mike Trout’s $430 million – Chris Sale signed a new contract that pays him until he’s 50. You can expect the likes of Mookie Betts and Aaron Judge to command similar contract demands when they hit free agency.

So, what’s the deal with baseball remuneration these days? Moneyball.

Rather than signing seven-year, $230 million deals to 30-plus-year-olds for past performances like they did a decade ago, teams have gotten smarter by focusing on sabermetrics. This is a form of statistical analysis that evaluates the performance of individual players, using advanced stats like Weighted On-Base Average (wOBA), Ultimate Zone Rating (UZR), and Wins Above Replacement (WAR).

Evidently, the nature of the game is changing as teams are investing more in their analytics department. In other words, data nerds with economics degrees from Harvard and Stanford are running bullpens (see Tampa Bay Rays) or telling managers who to pinch hit when a certain pitcher is tossing the ball.

Simply put, instead of pouring half of the team’s payroll into one guy, franchises are concentrating on the overall club. One person may be a specialist reliever who throws only one inning against the three-four-five lineup. Another player may walk more against one pitcher. A catcher might only be there to catch for knuckleballers. They’re all contributing in one way or another.

Home runs are back to where they were during the steroid era, but a team’s two main objectives now are getting on base and scoring runs; they are not living and dying on going bridge. Billionaire owners are no longer throwing their money away on a 34-year-old who used to hit 40 home runs a year while hitting .210. There will be outliers who will generate megadeals, but the trend moving forward is paying on current and future performance, which could be the driving factor for a strike in a couple of years.

Time to Fear Deflation?

President Donald Trump is in trouble again with the media because he is nominating conservative economist Stephen Moore to the Federal Reserve Board of Governors. The business press thinks Moore is not qualified to serve as the central bank, and the left believes his appointment was politically-charged (hint: they all are). Libertarians are also concerned that Moore will be an inflationist who wants to artificially control interest rates because of fears of deflation.

It is true that there has been a slowdown in the annual growth rate of price inflation worldwide. The U.S. consumer price index slumped to 1.5% in February, and Europe’s CPI has been at an anemic 1.5%. But real inflation – the expansion in the money supply – is still growing, which should be a cause for concern in the future.

Should we be wary of deflation? Central banks everywhere justify inflating the money supply and incorporating policies that only raise prices by contending that if shoppers expected prices to fall, then they would be less willing to spend.

So, if consumers thought the price of broccoli or a smart television would keep falling, then they would just wait until this vegetable rotted or this spying device was outdated. They’d hoard their nuts in perpetuity until the price tag cratered to nearly zero!

Surely, there must be evidence to support this economic theory.

Well, there is proof to find that deflation does not cause this to happen. One of the greatest periods of economic growth in American history occurred at the end of the 19^th century, also known as the Gilded Age. The U.S. economy experienced its fastest rate of growth in history as gross domestic product, capital formation, real wages, and wealth all rapidly soared. At the same time, prices of goods and materials decreased by less than 2% annually.

You also see this in the modern economy, particularly in technology. The cost of computers or electronics come down all the time, thanks to chip evolution, but consumers line up the day of an iPhone’s release. Why? Because they realize that the iPhone is worth more over the next six months than the accrued savings in postponing its acquisition.

It’s time that we dismiss the words of former Fed Chair Ben Bernanke, who warned in 2002 that “sustained deflation can be highly destructive to a modern economy and should be strongly resisted.” Deflation might not help politicians who benefit from an increase in the money supply, but doing the opposite of what central banks have done in the age of Bretton Woods would benefit the forgotten man.

Lies, Damn Lies, and Statistics

Whether it is government-mandated paid maternity leave or baseball salaries, we tend to side with what we feel is right rather than what we think is right. If we used our brains instead of our hearts, then the majority of the public would not support progressive policies – a recent study showed most Americans want a higher minimum, government child care, and tuition-free college.

Are MLB owners odiously colluding to suppress players’ salaries or are they just getting smarter with their investments? Should women be given mandated time off or would this result in less female employment and wages? Should central banks destroy the value of money or should they allow it to appreciate and give the public greater purchasing power?

The answers to these questions depend on how you deduce: with your heart or your brain.