Prevailing Wages

Fred Keller, the newly elected state Representative for the district that contains Susquehanna University, introduced a law almost all economists would support.

Prevailing wage laws are terrible for a couple reasons.  First, they force taxpayers to pay more for services than they would otherwise.  Given all the budget issues we are facing in this country, it is ridiculous to think that we would pay more for services than we have to, yet this is precisely the result you see when you enact prevailing wage laws.

Second, prevailing wage laws are bad for economic efficiency.  That is, the "wrong" person may end up winning the job.  In principles of microeconomics, we learn about how markets are efficient because at the market price, the people who most want to sell the product will sell the product and the people who most want to buy the product will buy the product.  When the government is involved, the way to ensure efficiency is to sell to the vendors who are willing to conduct a task for the lowest price.  When artificially high prices are involved, then it is easy for the job to go to the wrong person. 

For example, suppose 3 people of equal skill are willing to do a job.  They each have an alternative for the day that is worth:

Worker 1: $120
Worker 2: $90
Worker 3: $150

If the government sets the price between $90 and $119, we know the person with the lowest opportunity cost takes the job - worker 2.  This is good!  The other two have outside alternatives that are more valuable. 

However, suppose a prevailing wage law is in place and the government sets the wage at $160.  If this is the case, however, it would be just as likely that workers 1 or 3 would get the job.  This would cost society what is known as producer surplus and result in a "dead weight loss".  Compound that with the fact that taxpayers are paying more and you can see why prevailing wage laws are terrible.

It would be better if these laws were simply eliminated, but I suspect that's not politically feasible at the moment.  The current action, however, is a welcome change.

Kudos to Representative Keller for introducing a law that is good for taxpayers and is good for economic efficiency!

Prohibiting Online Poker

The government decided to effectively shut down online poker on April 15th, which has come to be known as Black Friday among poker players (link). 

I have been pretty disgusted by this since it happened.  Going from rage (which I still have) to more sheer disgust, to just an overall feeling of sadness.   

I made a modest amount of side-income from playing Internet poker, which is now not available.  While my income will be negatively affected, I am not as hurt as many.  I have a friend who is a professional poker player and he mainly played on the Internet.  Another friend runs a poker forum and earned money from the online poker sites that advertised with him - he likely will be hurt.  A third friend helped "stake" poker players to play in tournaments, where he would get a small profit from doing this.  I can't imagine the hassles he has right now.  This action just cost thousands of Americans their jobs, and cost millions of Americans the liberty from playing poker from their house. 

This is so sad on so many levels.  Our country has massive deficit problems, and the idea that the government is spending hundreds of millions of dollars prosecuting poker when instead it could be legalized and taxed is crazy.  Compared to our deficits, five billion dollars per year might seem small, but at this point I don't think our government is in the position to turn down $5 billion of extra revenue. 

Above all, every time I hear "land of the free" referring to the United States, I shake my head.  For those who don't play poker - think about what your most enjoyable hobby is, whether it is hunting, gardening, working with your local church, etc.  Now imagine the government bans it.  That's how I feel right now.

I am ashamed of and saddened and embarrassed by the actions of our country.