First, the University of Missouri, where the SJWs, with the help of a professor who didn’t think much of the 1st Amendment and was fine with committing battery to deny it, is having a rough year. Consequences from this bit of nonsense have really hit the bottom line:
Following a drop in students applying for housing, the University of Missouri will not be placing students in two dorms for the fall 2016 semester.
Mizzou will be closing the Respect and Excellence halls (ironic names, given the circumstances) in order to utilize dorm space “in the most efficient manner” to keep costs down.
In March, the university announced that it saw a sharp drop in admissions for the coming school year, and will have 1,500 fewer students. This will lead to a $32 million budget shortfall for the school, prompting the need to close the dorms in order to save money.
“Dear university community,” wrote interim chancellor Hank Foley in an email to the school back in March. “I am writing to you today to confirm that we project a very significant budget shortfall due to an unexpected sharp decline in first-year enrollments and student retention this coming fall. I wish I had better news.”
You see, those who are looking for a college have alternatives. And when they see a college or university that they perceive, right or wrong, to be out of control, they are likely to take their business elsewhere. Afterall, they’re paying the bill. So, take note all you institutions of higher learning who tend to fold like a wet paper box when a few students protest, you too may end up closing a couple of dorms if it goes the way of Mizzou. Fair warning.
Oh, and speaking of alternatives, New York government has decided to be “wonderful” with other people’s money and has hiked the minimum wage to $15 (over a time period). That’s double the wage of today. White Castle, an NY institution, isn’t taking that well since it will have a very heavy impact on their profitability (they make a 1 to 2% profit after expenses, including labor). White Castle’s CEO says there are few alternatives. If it was about price increases only, they’d have to increase their prices by 50%. He’s pretty sure that’s a no-go because of competition for dining out dollars. So, what’s he left with?
In the hyper-competitive restaurant industry, margins are slim — Richardson says that, in a typical year, White Castle hopes to achieve a net profit of between 1 and 2 percent — and if labor costs go up, many restaurants will turn toward labor-cost-cutting automation or business models that don’t require many employees. That means a lot of kids won’t get that first job. After decades of baggage check-in kiosks at airports, ATMs, and self-check-out lines at the supermarket, is it really so hard to imagine automation replacing the kid behind the counter at burger joints?
And what is lost to more young, inexperienced and thereby low-wage workers?
“We know that Millennials aren’t thinking they’ll stay at White Castle for 30 years,” Richardson says. “We view it as the start of the path. That’s true if you stay at White Castle or move on to something else. The skills you gain, you can take to the next role: learning how to apply for and get a job, learning how to show up, learning a work ethic, making a paycheck, and having fun.”
But this is about more than wages — White Castle has offered benefits and retirement programs for decades. It’s about the opportunity to work, to take the first step up the ladder of life, to get started.
“Out-of-work kids who don’t have an opportunity to work get in trouble. We want to offer kids jobs, offer kids work,” Richardson says. “There’s dignity in that.”
Somehow, though, the concept of starter jobs that pay low wages (and with the minimum wage, it’s usually more than they are worth) has become lost in all of this and we see government stepping in to make them “career” jobs for some idiotic and economically unsound reason. The result is predictable, although it will likely be hidden. You won’t see numbers because the numbers in question are those who are never hired because the wage floor is too high. And they’re going to be the “out-of-work” kids who don’t get that first chance to experience a job and what it takes to succeed.
Instead an alternative will do the work. A kiosk will greet the customer, takes his order and money and do so at a price point well below a $15 an hour worker. This isn’t rocket science and the math isn’t hard at all – $15 times 0 hours equals what?
Or, the definition of politics today (and how Margret Thatcher defined socialism). Today’s “wonderful” people? Well they’re all in California. Example one:
San Francisco on Tuesday became the first city in the United States to approve six weeks of fully paid leave for new parents — mothers and fathers, including same-sex couples, who either bear or adopt a child.
California is already one of only a few states that offer paid parental leave, with workers receiving 55 percent of their pay for six weeks, paid for by employee-financed public disability insurance. The new law in San Francisco, passed unanimously by the city’s Board of Supervisors, mandates full pay, with the 45 percent difference being paid by employers.
That’s right friends, the price of being nice means charging employers 45% more for paid family leave just for the privilege of doing business in San Francisco. Isn’t that just “wonderful”?
Well of course it is … just ask the clueless:
The United States, which guarantees up to 12 weeks of unpaid parental leave, is the only developed country that does not guarantee all new parents paid parental leave. Expectant mothers get 18 weeks of paid leave in Australia, 39 weeks in the UK, and 480 days in Sweden.
That’s right, they do it in … say it with me, Europe! You know, the group of countries, all of which were they states in the US, would be poorer than Mississippi. That’s what we want, isn’t it boys and girls!
It is the responsibility of others to pay for our choices! Because, you know, it’s the fault of the employer its employees get pregnant and miss work. They should pay them for that time. And what the heck, they can just socialize the payment by raising their prices, can’t they?
And, of course, they can socialize even more with California’s new $15 minimum wage. Because everyone knows that employers ‘owe’ employees a “living wage”. However, don’t forget members of California’s various governments up to their necks in giving away other people’s money – employers still have choices, and you can believe when they are feasible and affordable, they will exercise them.
When that happens, Cal Pols, you can hold a math quiz with everyone who finds themselves looking for work because employers took their business elsewhere or automated.
“What’s $15 dollars times zero hours?
Oh, wait, I forgot … government run schools.
It’s closer than you think. Last Friday I put a bit up in Stray Voltage about Dominos testing a robot delivery service in New Zealand. And I intimated that that sort of automation would be something that would displace labor if labor got too expensive – like $15 for the minimum wage.
Over the weekend I happened across a couple of more articles. One featured the CEO of Hardee’s and Carl Jr.’s talking about an automated restaurant he’d seen in San Francisco. And, sure enough, his focus was on labor savings ($15 minimum wages specifically):
The CEO of Carl’s Jr. and Hardee’s has visited the 100%-automated restaurant Eatsa — and it’s given him some ideas on how to deal with rising minimum wages.
“I want to try it,” CEO Andy Puzder told Business Insider of his automated restaurant plans. “We could have a restaurant that’s focused on all-natural products and is much like an Eatsa, where you order on a kiosk, you pay with a credit or debit card, your order pops up, and you never see a person.”
Pudzer’s interest in an employee-free restaurant, which he says would only be possible if the company found time as Hardee’s works on its northeastern expansion, has been driven by rising minimum wages across the US.
“With government driving up the cost of labour, it’s driving down the number of jobs,” he says. “You’re going to see automation not just in airports and grocery stores, but in restaurants.”
Good old government. Helping out again, aren’t they (another way to make you more dependent on them)? As Pudzer says:
“This is the problem with Bernie Sanders, and Hillary Clinton, and progressives who push very hard to raise the minimum wage,” says Pudzer. “Does it really help if Sally makes $3 more an hour if Suzie has no job?”
Well no, it doesn’t. And then there’s this:
“If you’re making labour more expensive, and automation less expensive — this is not rocket science,” says Pudzer.
Well no, it’s not – er, except to Bernie supporters. But then it isn’t necessarily easy to automate everyone’s jobs either. But it is getting easier as technology develops.
Take the restaurant that Pudzer was talking about:
“I would call it different than a restaurant,” said David Friedberg, a software entrepreneur who founded Eatsa. “It’s more like a food delivery system.”
Last week, I was in a fast-moving line and browsed on a flat-screen monitor the menu of eight quinoa bowls, each costing $6.95 (burrito bowl, bento bowl, balsamic beet). Then I approached an iPad, where I tapped in my order, customized it and paid. My name, taken from my credit card, appeared on another screen, and when my food was ready, a number showed up next to it.
It corresponded to a cubby where my food would soon appear. The cubbies are behind transparent LCD screens that go black when the food is deposited, so no signs of human involvement are visible. With two taps of my finger, my cubby opened and my food was waiting.
The quinoa — stir-fried, with arugula, parsnips and red curry — tasted quite good.
And he saw no one other than other customers. Says the author of the article:
Whether a restaurant that employs few people is good for the economy is another question. Restaurants, especially fast-food restaurants, have traditionally been a place where low-skilled workers can find employment. Most of the workers are not paid much, though in San Francisco employers of a certain size must pay health benefits and in 2018 a minimum wage of $15.
Ironic, isn’t it? That the prototype “food delivery system” is established in a city in which government has decided it will set the wages. The laws of economics, or “rocket science” for the Bernie supporters, begs to differ. There’s no real advantage in terms of labor savings, if the market sets the minimum wage, but mandated wages? Well, then it comes down to viable alternatives – and cost-wise, this is suddenly viable. The lower wage job holders of America say – thanks government.
And beyond the obvious, there are advantages to automating:
By not hiring people to work in the front of the restaurant, he said, they save money on payroll and real estate. (There will always be at least one person available to help people navigate the iPads and to clean up.) The kitchen is also automated, though he declined to reveal how, and the company is experimenting with how to further automate food preparation and delivery.
And, fewer to call in sick, give benefits, sick days and paid vacations too. Make an employer’s job easier, more efficient and more enjoyable and the employer will take that route every time.
“We can sit and debate all day what the implications are for low-wage workers at restaurants, but I don’t think that’s fair. If increased productivity means cost savings get passed to consumers, consumers are going to have a lot more to spend on lots of things.”
Consumers have a choice – spend more for the same thing to help someone else have more money or spend less for the same thing and have more to spend on other things they want or need. Wal-Mart says they will choose the latter. So do those pesky laws of economics.
The food industry isn’t the only industry that’s going to see this though:
Automation is transforming every industry. Business owners look to substitute machines for human labor. It happened to blue-collar workers in factories and white-collar workers in banks and even law firms. With self-driving vehicles, it may happen in the taxi and trucking industries. Robots and artificial intelligence machines are expected to transform health care.
Coming sooner rather than later … possibly sooner than we think.
Nowhere is the potential for job automation so obvious as it is in the on-demand economy, where many startups have grown fat with venture capital despite poor unit-economics. Uber is spending heavily to hasten the development of driverless cars. Instacart, Postmates, and other delivery-heavy startups are unlikely to stick with humans once machines—which don’t take sick days, need bathroom breaks, or threaten to unionize—can do the same jobs.
But even if you don’t work in the on-demand economy, chances are high that you or someone you know will eventually be in the same position as Fox-Hartin. Machines already exist that can flip burgers and prepare salads, learn and perform warehouse tasks, and check guests into hotels. Companies like WorkFusion offer software that observes and eventually automates repetitive tasks done by human workers. And automation has also crept into knowledge-based professions like law and reporting. When in 2013 researchers at Oxford assessed whether 702 different occupations could be computerized, they concluded that 47% of U.S. employment was at risk of being lost to machines.
The more I watch this ignorant populist desire to raise the minimum wage (as far as I’m concerned, the minimum wage is $0) to $15 dollars, the more I wonder why people don’t actually think about the issue and its ramifications before staking out a position “for” the hike.
Oh, wait … think. Yeah, never mind. It simply doesn’t happen anymore. And by the way, the thinking one must do isn’t rocket brain surgery. It’s pretty much common sense. So, given the local burger flipper wants $15 bucks an hour to keep flipping those burgers, what is at risk. Well, mostly, his or her job:
Many chains are already at work looking for ingenious ways to take humans out of the picture, threatening workers in an industry that employs 2.4 million wait staffers, nearly 3 million cooks and food preparers and many of the nation’s 3.3 million cashiers.
Of course they are. Why?
“When I first started at McDonald’s making 85 cents an hour, everything we made was by hand,” Rensi said — from cutting the shortcakes to stirring syrups into the milk for shakes. Over the years, though, ingredients started to arrive packaged and pre-mixed, ready to be heated up, bagged and handed out the window.
So what does that mean?
Crowded. That’s how Ed Rensi remembers what life was like working at McDonald’s in 1966. There were about double the number of people working in the store — 70 or 80, as opposed to the 30 or 40 there today — because preparing the food just took a lot more doing.
That’s right, as automation and packaging and pre-mix advanced, fewer workers were needed. It had nothing to do with wages, per se, it had to do with efficiency. What produced the most money for the work involved.
How does one make a profit? Well one way is by being efficient. I.e. producing product at a lower cost than your competition. So how is the fast food business doing in that department? Not so hot.
The market research company IBISWorld has calculated that the average number of employees at fast-food restaurants declined by fewer than two people over the past decade, from 17.16 employees to 15.28. And restaurants tend to rely more on labor than other food outlets: According to the National Restaurant Association, dining establishments average $84,000 in sales per worker, compared with $304,000 for grocery stores and $855,000 for gas stations.
So, raise double the wage and what happens to the already poor efficiency? Right, it goes down.
Then add to that the fact that no manager is going to work for the same wages as his employees. So if management is earning $15 an hour now, what does that have to go to in order to keep good people (it is one of the primary reasons unions back all minimum wage increases – because they get an increase too)? And what does that do to the price of a burger?
It makes it skyrocket.
Given that, what will employers in an already inefficient market likely choose to do? Well right up at the top of the list is a note to reduce staff. And then there’s “introduce efficiencies” to keep costs down.
The labor-saving technology that has so far been rolled out most extensively — kiosk and tablet-based ordering — could be used to replace cashiers and the part of the wait staff’s job that involves taking orders and bringing checks. Olive Garden said earlier this year that it would roll out the Ziosk system at all its restaurants, which means that all a server has to do is bring out the food.
Robots can even help cut down on the need for high-skilled workers such as sushi chefs. A number of high-end restaurants use machines for rolling rice out on sheets of nori, a relatively menial task that takes lots of time. Even though sushi chefs tend to make more than $15 an hour, they could be on the chopping block if servers need to make $15 an hour, too.
A service contract is much less costly than payroll benefits and there’s no sick leave or missed days involved.
As technology advances, even more jobs will be eliminated. Not necessarily because employers want to eliminate them, but because bird-brained idiots want to force them to pay $15 for a $5 job. Who gets hurt? 2.4 million wait staff, 3 million cooks and 3.3 million cashiers. Yes, that’s right, the stupidly conceived push for a $15 minimum wage will jeopardize 8.7 million jobs.
And as we’ve been asking for a long time, what is $15 x 0?
My guess is most of us would agree that America seems to be in decline, but not for the reasons TIME magazine does. Much of the decline is centered in the politics and policies of the governing party.
But TIME is pretty sure that, given the study that they cite, the reason is … capitalism. Here’s the “it was great, but” reason:
“We looked at very broad measures, and at individual measures, too,” said co-author Hershey H. Friedman, a business professor at Brooklyn College – City University of New York. The most dangerous sign they saw: rising income and wealth inequality, which slow growth and can spark instability, the authors say.
“Capitalism has been amazingly successful,” write Friedman and co-author Sarah Hertz of Empire State College. But it has grown so unfettered, predatory, so exclusionary, it’s become, in effect, crony capitalism. Now places like Qatar and Romania, “countries you wouldn’t expect to be, are doing better than us,” said Friedman.
I wish those who opine about this sort of thing would begin to delink capitalism and “crony capitalism”. Because as soon “crony” is added, “capitalism” is no longer evident. Instead you have powerful corporate/social/political constituents helping write laws that raise bars to entry in a markets to impossible heights. You have the same entities suggesting regulations which have the same effect. Capitalism, in its barest essence, is a voluntary transaction between two free people which ends profitably for both. That’s it. When government begins intruding with regulations and laws designed to limit and protect certain constituencies, from corporations to unions, that’s not capitalism, whether you stick “crony” in front of it or not.
It is certainly cronyism. The government attacks, for instance, on Uber are rampant cronyism. They’re designed by government to protect an existing constituency that doesn’t like the competition (and has had a government granted monopoly for decades). Of course, in the end, it is the consumer – i.e. the citizen – who is hurt by this sort of cronyism.
And it appears that cronyism has gotten worse and worse over the past few years. So while America may be in decline, it isn’t because of capitalism.
It’s because of cronyism, government favoritism, or whatever catch word or phrase you wish to tag the phenomenon with. But leave capitalism out of it.
So the citizens of San Francisco voted themselves an increase in prices, er, excuse me, a “$15 minimum wage” and thumb their noses at the laws of economics.
Reality hits back. Borderland Books, an iconic SF bookstore, provides the perfect two-fold example with this announcement:
In November, San Francisco voters overwhelmingly passed a measure that will increase the minimum wage within the city to $15 per hour by 2018. Although all of us at Borderlands support the concept of a living wage in principal and we believe that it’s possible that the new law will be good for San Francisco — Borderlands Books as it exists is not a financially viable business if subject to that minimum wage. Consequently we will be closing our doors no later than March 31st. The cafe will continue to operate until at least the end of this year.
Many businesses can make adjustments to allow for increased wages. The cafe side of Borderlands, for example, should have no difficulty at all. Viability is simply a matter of increasing prices. And, since all the other cafes in the city will be under the same pressure, all the prices will float upwards. But books are a special case because the price is set by the publisher and printed on the book. Furthermore, for years part of the challenge for brick-and-mortar bookstores is that companies like Amazon.com have made it difficult to get people to pay retail prices. So it is inconceivable to adjust our prices upwards to cover increased wages.
The change in minimum wage will mean our payroll will increase roughly 39%. That increase will in turn bring up our total operating expenses by 18%. To make up for that expense, we would need to increase our sales by a minimum of 20%. We do not believe that is a realistic possibility for a bookstore in San Francisco at this time.
Note the key lines. “The change in minimum wage will mean our payroll will increase roughly 39%.” Yet, there’s not 39% room in the earnings to weather that increase, because an 18% increase in operating costs puts them in the red. Borderland Books explains why – retail price is almost impossible to get anymore so they can’t increase the price of the product to cover the cost. Result? The workers in the bookstore will have a wage of $0 as of March 31. I’m sure they’re thrilled.
Meanwhile the cafe will stay open because it can do what? Pass the cost on to the customer. So in essence, those who voted for the increase in minimum wage voted dollars out of the pockets of those who opposed it as well as their own. While the workers in the cafe will get their $15 an hour minimum wage, it will be achieved in an increase in the price of the goods the cafe sells (about 20%). And if their experience is anything like Seattle’s (which also instituted a $15 minimum wage) tips will dry up to next to nothing, while perks (such as free meals, parking, etc.) will be discontinued now that the workers make enough money to pay for most of them.
Yes, economic illiteracy has a price – and here it is. Fewer jobs, higher prices, all a result of fools who thought they could magic “a living wage” out of a vote without that having any consequences to the workers or themselves.
Well that’s determined by all sorts of variables – how much the person seeking the job is willing to take, how much the person wanting the job done is willing to pay, the scarcity or abundance of labor, etc.. And so in a free market, when a job is open it is up to the person seeking to have the work done and the person seeking a job to decide what it is worth to each of them. If they can reach agreement, then the job is offered to the person seeking the job. If agreement can’t be reached, then the job goes unfilled.
The bottom line is that no outside party can decide what that job is worth – in that mythical free market, that is. However, we don’t have a free market and legislators, trying to buy the good will of voters with other people’s money, often decide they know what every job is worth at a minimum. Thus the minimum wage.
Well this is anecdotal, I know, but it certainly seems to support every negative we here at QandO have been talking about for years. In the long run raising the minimum wage only raises the cost of labor. It does not change the worth of a job. Ever.
SeaTac workers are learning that the hard way:
Last January, SeaTac implemented a $15 per hour minimum wage for hospitality and transportation workers. The consequences to the drastic hike in wages are just beginning to be realized—and it’s not pretty.
“It sounds good, but it’s not good,” the woman said.
“Why?” I asked.
“I lost my 401k, health insurance, paid holiday, and vacation,” she responded. “No more free food,” she added.
“The hotel used to feed her. Now, she has to bring her own food. Also, no overtime, she said. She used to work extra hours and received overtime pay.
“What else? I asked.
“I have to pay for parking,” she said.
“I then asked the part-time waitress, who was part of the catering staff.
“Yes, I’ve got $15 an hour, but all my tips are now much less,” she said. Before the new wage law was implemented, her hourly wage was $7. But her tips added to more than $15 an hour. Yes, she used to receive free food and parking. Now, she has to bring her own food and pay for parking.”
SeaTac is a small city—10 square miles in area and a population of 26,909—with an economy almost exclusively defined by the Seattle-Tacoma International Airport. Five months into the implementation of a $15 minimum wage and it appears that a deep sense of regret has already flooded the city and workers who should have “benefited” from the terrible economic policy.
Meanwhile, as the largest city in the Pacific Northwest and one of the fastest growing major cities in America, Seattle is on the verge of following in SeaTac’s woefully unfit footsteps. Seattle Mayor Ed Murray’s $15 minimum wage plan includes a phase-in period of three to seven years and makes no exception for business type or size. Murray’s plan elicited back-lash from prominent Seattle businesses owners and economists alike.
Like we’ve said, increased costs associated with the job will likely be passed along to either the customer or the worker or both. Here you have two perfect examples of how perks that helped workers and were of value to them (and for which they didn’t have to pay taxes) fell victim to some interfering government body unilaterally raising the cost of labor. The worth of the job done didn’t increase at all. Consequently, businesses looked at ways to compensate for the increase in labor cost. As for the decrease in tips? Well people tip well because they know most waiters and waitresses don’t make much for a wage. However, when they’re making $15 an hour, suddenly there isn’t a great or compelling reason to “help them out”. Tips decrease. Why tip someone for doing their job when they’re making that kind of money hourly. And, just as likely, prices have gone up to cover this expense. Consequently, overtime is limited, etc.
Its not that this is something hard to figure out. But the socialists among us never get past the feelgood part of it, because, well, because math is hard and economics is absurdly hard … or something..
Market? What market? We haven’t had a free market for much of anything in at least the last 75 years:
Business groups and congressional Republicans are blasting regulations President Obama will announce Thursday that could extend overtime pay to as many as 10 million workers who are now ineligible for it.
While liberals lauded the plan as putting more cash in the pockets of millions of workers, business groups warned it would damage the economy and Republicans said it was another example of executive overreach.
That’s right friends, now it appears that the Obama administration has decided … that’s right, “decided” … that in addition to the increase in the minimum wage, now it needs to redefine who is eligible for overtime. And, of course, that redefinition is going to negatively impact who? Businesses. And if they have to live with the changes, who then will it effect?
Oh, yeah, those that can least afford it. Why? Because it will increase the cost of doing business. And what do businesses do when their costs increase? Pass it on to the consumer.
Now, I ask, was that so hard to spell out? No. And is it hard to understand? Again, no.
So why is it liberals can’t follow the logic train to its final destination?
Well that’s fairly simple, they don’t think, they emote. The bureaucrats, who’ve never had to run a business or turn a profit in order to meet a payroll are experts in what others “need”. And they’re convinced those who are involved in running a business are just greedy.
“What we’re trying to take a look at is how we can make the labor force as fair as possible for all workers and that people get rewarded for a hard day’s work with a fair wage,” Betsey Stevenson, a member of the White House Council of Economic Advisers, told reporters Wednesday.
Right. Because, you know, the guy who risked everything and has succeeded to the point that he can hire others and thereby give the abysmal unemployment numbers some relief aren’t “fair” – by definition I guess.
“Changing the rules for overtime eligibility will, just like increasing the minimum wage, make employees more expensive and will force employers to look for ways to cover these increased costs,” said Marc Freedman, executive director of labor law policy at the U.S. Chamber of Commerce.
Meanwhile in fantasyland:
Stevenson, however, contended that there would likely be an increase in employment as a result of the change, with companies deciding to hire more employees rather than paying existing workers at a higher rate.
Really? Or perhaps they’ll hire less and use technology to fill the bill. Technological answers don’t ask for raises, don’t require health care coverage, don’t need overtime, etc. In fact, it is likely to lead to less employment and more mechanization.
But we should understand the BIG reason:
Proponents say the regulations are an issue of fairness.
“I think that if you put in a full week’s work and you end up being asked by your employer to work longer hours, you deserve to be paid a little extra,” said Rep. Xavier Becerra (D-Calif.).
Is that right? Well, frankly, Rep. Becerra, that’s none of your freakin’ business. But, I assume you can point out the Constitutional basis for your “thought”, right?
Bunch of idiots. They are bound and determined to destroy the golden goose because they’re are woefully ignorant of the goose’s anatomy and how it works.
We spent quite a bit of time discussing this on the podcast yesterday. It’s from the Washington Post and is written by Steven Pearlstein.
I have some real issues with his characterizations of Capitalism, especially where he tries to use events and problems to imply that Capitalism is less than moral.
I had hoped to write up something, but as happens more frequently here lately, life has intruded. However, a commenter to the WP article summed it up nicely for me:
Free markets don’t regulate my excesses, guarantee equal opportunity or fairly divide the economic pie. Yet Mr. Pearlstein seems to be arguing that if free markets don’t do these moral things, then they’re immoral.
So there’s the central fallacy in the debate as posited by Pearlstein: Your system doesn’t do what I want it to do so it’s bad, even though your system can’t do what I want it to do because that’s not its purpose or design. To illustrate, your religion is bad because it doesn’t promote gay rights like I want even though gay rights is an utterly foreign and inimical idea to your religion, whose purpose and design is to save souls. (This was the essence of CNN’s coverage of the papal conclave.)
See the problem? OK, another try: Free markets don’t make me use less gasoline, guarantee me a nice job in return for getting a degree in Latino Studies, or prevent Donald Trump from getting too rich compared to me. Therefore, free market capitalism is bad, or at least not moral. OK, but free markets don’t and can’t do any of these things, so your standards and measures are irrelevant and thus illogical, see? Why not measure the moral character of free markets by what they do? For example, free markets provide places where people can meet to voluntarily transact business without worrying about getting clobbered or expropriated by government or criminals. What’s immoral about that?
You’ve gotta hand it to the left: They really know how to enshroud a debate in illogic, falsehood and emotion. Take off those pinko-colored glasses, though, and you realize that the debate Pearlstein wants to have is nonsense: Free markets can’t, don’t and won’t do what he wants government to do because free markets are not government. Ergo, the valid and relevant issue is whether we all want government to continue doing all that it’s doing at the price we’re paying for government to do it. And I guarantee you that no one on the left wants to have that debate.
The commenter, Lavaux, does a pretty decent job of nailing the fallacy which Pearlstein and many critics of Capitalism (and many other issues as he demonstrates) suffer under – claiming that it is something other than it is and then attacking that “something”, or, as we usually say, using a strawman argument. Pearlstein, as Lavaux points out, is slashing at those strawmen throughout his piece.
Capitalism has become the “go-to” boogy man on the left. All sorts of things that have no relevance or aren’t a part of Capitalism are blamed on Capitalism. Usually, however, if you dig deep enough (sometimes you don’t have to dig at all) you’ll find the hand of intrusive government somewhere in the problem mix. That immediately takes it from the realm of Capitalism to all sorts of other nether regions which have nothing to do with with it.
But, you know that …. unfortunately, a vast majority of your fellow citizens don’t.
Thus the demonization of Capitalism and the exoneration of government continue apace.
So tell me again why the government can’t seem to get along with what it already gets?
Taking into account all taxes on earnings and consumer spending—including federal, state and local income taxes, Social Security and Medicare payroll taxes, excise taxes, and state and local sales taxes—Edward Prescott has shown (especially in the Quarterly Review of the Federal Reserve Bank of Minneapolis, 2004) that the U.S. average marginal effective tax rate is around 40%. This means that if the average worker earns $100 from additional output, he will be able to consume only an additional $60.
And yet the prevailing political attitude seems to be that of France’s “leadership”, i.e. government, has first claim on all your earnings and if you protest you’re “greedy”.
Speaking of France, California seems bound to duplicate its latest tax scheme:
Consider California, which just enacted higher rates of income and sales tax. The top California income-tax rate will be 13.3%, and the top sales-tax rate in some areas may rise as high as 10%. Combine these state taxes with a top combined federal rate of 44%, plus federal excise taxes, and the combined marginal tax rate for the highest California earners is likely to be around 60%—as high as in France, Germany and Italy.
Yet they wonder why people are fleeing the state.
Impact and implications?
Higher labor-income and consumption taxes also have consequences for entrepreneurship and risk-taking. A key factor driving U.S. economic growth has been the remarkable impact of entrepreneurs such as Bill Gates of Microsoft, Steve Jobs of Apple, Fred Smith of FedEx and others who took substantial risk to implement new ideas, directly and indirectly creating new economic sectors and millions of new jobs.
Entrepreneurship is much lower in Europe, suggesting that high tax rates and poorly designed regulation discourage new business creation. The Economist reports that between 1976 and 2007 only one continental European startup, Norway’s Renewable Energy Corporation, achieved a level of success comparable to that of Microsoft, Apple and other U.S. giants making the Financial Times Index of the world’s 500 largest companies.
Yet we continue to try to recreate Europe’s debacle here.
The economy now faces two serious risks: the risk of higher marginal tax rates that will depress the number of hours of work, and the risk of continuing policies such as Dodd-Frank, bailouts, and subsidies to specific industries and technologies that depress productivity growth by protecting inefficient producers and restricting the flow of resources to the most productive users.
If these two risks are realized, the U.S. will face a much more serious problem than a 2013 recession. It will face a permanent and growing decline in relative living standards.
These risks loom as the level of U.S. economic activity gradually moves closer to that of the 1930s, when for a decade during the Great Depression output per working-age person declined by nearly 25% relative to trend. The last two quarters of GDP growth—1.3% and 2.7%—have been below trend, which means the U.S. economy is continuing to sink relative to its historical trend.
But your political and financial lords and masters know best, don’t they? Just ask them. They continue down this road despite the fact the destination is in plain sight in Europe and it isn’t pretty.
Occam’s Razor states “entities should not be multiplied unnecessarily.” Said another way, the simplest explanation is usually the most likely explanation. In this case the simplest explanation is incompetence. But is it really incompetence? With the European example staring them right in the face it’s hard to believe anyone is that incompetent. The conclusion to their policies have already been proven to be a disaster.
So one has to being to consider other possibilities when those who are pushing the policies seem oblivious to the obvious.
You have to begin to wonder if it is a problem of hubris. I.e. “the only reason it hasn’t worked before is we weren’t in charge”. We’ve seen that in any number of instances throughout history where discredited or obviously illogical ideological ideas were tried and they again failed.
Or you have to consider the words “by design”. But then you’re stuck with trying to come up with a valid reason “why”. Recreating Europe’s debacle, or Japans’s or, for heaven sake, our’s in the ’30s would seem to be something smart politicians would attempt to avoid.
But here we are.
Economic growth requires new ideas and new businesses, which in turn require a large group of talented young workers who are willing to take on the considerable risk of starting a business. This requires undoing the impediments that stand in the way of creating new economic activity—and increasing the after-tax returns to succeeding.
And yet, we see a government bent on erecting even more impediments via increased taxation, costly new laws and onerous regulation.
Isn’t it about time we demanded to know “why?” More importantly, maybe we should ask whose side they’re on.