Monday, April 27, 2015

A trout in the milk

"High wage jobs create low wage jobs"...

...or so we are informed and I have no reason to challenge the source. What often gets said next sounds helpful, even hopeful, but isn't really.

It goes something like: the way to respond to the creation of the low wage jobs that result from creating high wage jobs is to create more high wage jobs and then train low wage workers to fill these new high wage jobs. 

Then the conversation moves on because this is pretty much what we've come to believe. 


  1. We've just been told high wage jobs create low wage jobs.
  2. Then we're told that the best response is to create more high wage jobs.
  3. We take comfort in the knowledge that the lives of low wage workers will be improved with training that moves them into these newly created high wage jobs.
  4. Except, this time there is no acknowledgement that by creating high wage jobs to improve the lives of low wage workers trained to fill them more low wage jobs will also be created (remember "high wage jobs create low wage jobs") to be filled by workers working for low wages.
  5. Not to mention that the low wage job from which the trained worker has moved on to a better paying one is now filled by someone else who will be working for the same low wages.

In other words, improving the lot of low wage workers by training them for high wage jobs created to improve their lot does nothing to reduce the number of low wage jobs or those working for low wages. 

If one accepts the prevailing logic of job creation ("high wage jobs create low wage jobs"), then we can expect low wage jobs with low wage workers to increase as high wage jobs with high wage workers increase.

"There is an affluence..."
But those executives and world leaders will need to be kept happy as well. That's why Destination Medical Center includes expectations that five-star hotels and fine-dining restaurants will spring up in Rochester — because Mayo patients able to afford high-end, out-of-pocket medical care will also expect high-end service at restaurants, hotels and other venues in Rochester. 7.12.13
"There is an affluence that is used to the type of restaurants that you can get in New York City," he said..... That's the kind of DMC private development Carlson thinks will cater to the niche market of affluent international patients. Those will not be the only patients attracted to a destination medical center. But their presence will help offset low reimbursement for Medicaid patients and uncompensated care. 7.13.13
Also, as Brede pointed out, not all of the 35,000 new jobs projected for Rochester over the next 20 years are high-paying positions. In fact, a large portion will be in the hotel and restaurant industry, paying lower wages, and that means more people in Rochester struggling to get by. 6.12.13
  1. The affluent patients will offset the costs of Medicaid patients.
  2. To attract affluent patients we must provide five-star hotels and fine dining.
  3. Hotels and restaurant service workers are paid low wages.
  4. Low wage service workers qualify for Medicaid.
  5. The affluent patients will offset the costs of Medicaid patients.
In other words, jobs providing the service amenities assumed to attract the affluent and offset the low reimbursement of Medicaid patients will in turn create Medicaid patients.

If one accepts the prevailing logic of job creation (service industries will pay low wages), then we can expect that the niche market strategy of catering to the affluent will contribute to the very costs it is intended to offset.

Producing that misery we strive to relieve
There are a thousand hacking at the branches of evil to one who is striking at the root, and it may be that he who bestows the largest amount of time and money on the needy is doing the most by his mode of life to produce that misery which he strives in vain to relieve.  
- Henry David Thoreau, Walden

It might be fair to observe that the vicious cycles enumerated above result from a too simple view of how things work. In defense I can only ask that you consider what I have to work with here. After all, I am not the one who said "high wage jobs create low wage jobs." Neither did I set forth the strategy to offset the cost of providing health care to the working poor by marketing health care destination amenities to the rich for whom in turn more working poor will be required to work. 

In any case, how would the outcomes differ if a more complex view were taken? Or are we missing something even more simple? 

Thoreau also observed that sometimes matters may be obvious "as when you find a trout in the milk." The trout in the milk above is low wages. 


  1. Low wages create low wage jobs.
  2. Raising wages create higher wage jobs.
  3. .....

Monday, April 20, 2015

Irrational exuberance and the path not taken

"It is this deception which rouses and keeps in continual motion the industry of nature"
-Adam Smith, The Theory of Moral Sentiments, IV.I.10, 1759

Wojcik cautioned the council against following a "path of irrational exuberance" where funding was not accounted for. 4.17.15

Alan Greenspan, naked and wet

"The concept of irrational exuberance," writes Alan Greenspan in his 2007 autobiography, The Age of Turbulence: Adventures in a New World, "came to me in the bathtub one morning as I was writing a speech."

In that speech"The Challenges of Central Banking in a Democratic Society," delivered at the annual dinner and Francis Boyer Lecture of The American Enterprise Institute for Public Policy Research in Washington, D.C. on December 5, 1996, the former chair of the Federal Reserve Bank asked, "But how do we know when irrational exuberance has unduly escalated asset values...?"  

"Irrational exuberance" has since been something against which most persons would caution us. And so were we recently cautioned by a member of the city council. Probably not bad advice as far as it goes, but a bit late.

In Rochester, we're not just following a path of irrational exuberance, we're laying pavement.

Is it worth noting that the wet and naked Ayn Rand disciple did not say irrational exuberance was bad, but only pondered how we might discern when its influence is undue? 

Adam Smith: Money can't buy happiness, but thinking it can isn't all bad - or - what's that invisible hand doing?

In his story of the poor man's son, Adam Smith considers the fruits of a life spent in pursuit of wealth and greatness. Thinking it will grant him tranquility and happiness, the son finds instead it affords him neither. 

Yet, having made this observation, Smith concludes even though it may "keep off the summer shower, but not the winter storm" (and we all suffer and die anyway), it is this delusion that wealth brings happiness that prompts us: cultivate the ground, to build houses, to found cities and commonwealths, and to invent and improve all the sciences and arts, which ennoble and embellish human life; which have entirely changed the whole face of the globe, have turned the rude forests of nature into agreeable and fertile plains, and made the trackless and barren ocean a new fund of subsistence, and the great high road of communication to the different nations of the earth. 
So: much as our desires might jerk us around, the invisible hand pleases nonetheless.

From the market to a market

Virginia Postrel - who got me to Smith - writes in "In Praise of Irrational Exuberance,"
All this delusion can, of course, become destructive. But there’s more to it than mere foolishness. The illusions that spur entrepreneurial ventures and consumer daydreams point to the nonmaterial side of markets. Markets not only expand health and comfort, providing a sustaining material existence. They also spur ambition and imagination, the quest for achievement and the pursuit of meaning. They give us an opportunity to exercise our creativity, to enjoy the satisfactions of absorbing, productive work, and to fashion and express our identities.
She is speaking to markets, as are Greenspan and Smith, but what she says (and Smith as well in his way) speaks to not just how the market comes to be a human enterprise, but that it is a human enterprise. Fully, thoroughly human.

I would not be the first to observe that in this human enterprise the difference between business-as-usual and entrepreneurial innovation is a joy that knows nor needs no other reason. We'll see plenty of both in the years ahead. You'll know them by the path not taken.