Free Markets, Free People


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Ignorance is bliss – until you’re out of work

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?


Is China heading us toward another global recession?

I found this interesting:

Chinese policy makers seem unwilling to accept that downturns are perfectly normal even for economic superpowers, as the U.S. has often demonstrated. Over the past century the U.S. economy experienced a dozen recessions and a Great Depression even as it remained the world’s leading economy. But Beijing has little tolerance for business cycles and is now reviving efforts to stimulate sectors that it had otherwise wanted to see fade in importance, from property to infrastructure to exports. Given the over-investment in these areas and the cloud of debt that still hangs over the Chinese economy, these efforts are unlikely to lead to a sustained upturn. While China reported that its GDP grew exactly in line with its growth target of 7% in the first and second quarters this year, all other independent data, from electricity production to car sales, indicate the economy is growing closer to 5%.

That leaves the global economy perilously close to recession territory. In the first half of 2015, global economic output expanded by barely 2%, making it the weakest two-quarter period since the expansion began in mid-2009. Industrial production and world trade growth were flat, developments that in the past have corresponded with global recessions.

Funny how that “5 year plan” reporting hasn’t changed a bit.  And, of course, we too get that sort of reporting from out government too. Don’t believe it?  Just ask Bernie Sanders about the real unemployment rate.

Yup, if it comes to a global downturn again, as with the last time, it will be caused by … government.


So, how IS the economy doing?

Dale keeps you abreast of the daily numbers and if you even glance at them semi-regularly, you know they’re not particularly good.

So how have we been doing lately economically?  Well, a little historical context might help:

In the 138 years from 1870 to 2008, the US economy expanded by about an average of 3% a year. After the revisions to GDP data from 2012-2014, we see that the U.S. economy since the financial crisis has been growing an average of 2.0% a year versus the earlier 2.3%. The difference between 3% and 2% may not sound like much, but think of it this way:

At a 3% growth rate the economy doubles in about 24 years.
At a 2% growth rate the economy doubles in about 36 years – 50% MORE time!

And don’t forget, while the government tries to sell you on 2% being the new norm (and you should like it), much of the recent GDP results have involved huge government spending.  So it is actually worse than the 2%.

Here’s a fairly interesting bottom line:

Today there are 136 people receiving some sort of government benefit for every 100 people employed in the private sector.

That can’t go on indefinitely.  Greece and Puerto Rico have already demonstrated that.  And, although it isn’t the only factor leading to this economic demise, it certainly is one of them.

You see, math and reality don’t bow to ideology and fantasy.


The power of the market, proven again …

We were told that while oil prices were high, shale oil could be produced at enough of a profit to drill, but to expensive to continue if the prices dropped.

But efficiency and technical innovation have overcome that bit of conventional wisdom as Shale Energy Insider reports:

US shale companies have increased the number of rigs in the field for the first time in nearly seven months when oil prices were trading around $70 per barrel, compared to under $60 per barrel in the current market.

The number of rigs rose in almost every main shale basin across the US according to data gathered by Baker Hughes.

Industry experts have suggested that as a result of last year’s price crash, shale exploration firms have cut their break even costs by anything up to $20 per barrel.

As much as anything else, the rise this week is a testament to break-evens coming down just over the course of this year,” said James Williams, president of energy consultancy WTRG Economics.

Shale is a lot more resilient than we thought it was, and it means we’re going to be able to keep producing shale oil at a lower cost than we thought we could.”

Adding rigs is the primary way to gauge whether or not it is economically profitable for energy companies to drill for and pump the oil  According to one analyst, the companies have been able to streamline their operations to the point their breakeven costs have dropped by about $20 a barrel.  That’s huge:

A Bloomberg analyst suggested that the cost of drilling services have fallen between 20% and 50% with break even prices in parts of the Permian and Eagle Ford below $40 per barrel.

And what does it mean overall?

Director of upstream research for Wood Mackenzie, Scott Mitchell forecast that producers could add up to 100 oil rigs by the end of the year.

Drilling rigs and fracking require a quite specific technical workforce, and there were a lot of layoffs as a result of the drop in activity.

We may find the supply of people becomes short very quickly if activity ramps up, leading to price increases again,” he predicted.

That’s right … jobs and less expensive gas.  Of course, most if not all of the shale oil drilling has taken place on non-federal land, and the market has been able to function without a great deal of governmental interference.  It is providing both employment and a very important commodity at less expensive prices.  Additionally, as it lowers its breakeven point, it buffers us against volume drops as the price of oil comes lower and other sources stop producing oil.  With the lower breakeven point, they’ll continue to pump past the point where they’d have quit previously because doing so is still profitable for them.  That helps ensure lower prices at the pump will be more common and more stable.

The market … a wonder we need to allow to work without interference much more often than we do.


Obama? He’s just too smart for us on the right!

Or at least that’s the thesis of one Allen Clifton.

Which brings me to President Obama. While I’m not calling him a genius, I do think he’s extremely intelligent. I also believe that his tendency to use “big picture” thinking while drafting policy is something most Republican voters simply can’t understand.

Now understand it this comes from orthodoxy central, aka a site called “Forward Progressives”.  And this is apparently considered “forward thinking”.  We just are too stupid to get it.

He uses Obamacare as an example of us not getting it:

While many Republicans want to look at the “now” aspect of the Affordable Care Act, they seem unable to grasp the reality that as more Americans get health insurance, giving them access to preventable care, this lowers expenses down the road for everyone. If people can prevent very costly heart attacks, strokes or other debilitating health issues now, that’s an overall savings for practically everyone from consumers to health insurers to doctors who now have more patients. Quite literally, improving the overall health of Americans will improve the health of this country. It even makes sense for our economy. If workers are healthier, because they have access to quality health care, that means there will be fewer people calling in sick to work, showing up sick to work (putting other employees at risk) or relying on government programs because their health conditions (that were preventable) render them unable to work at all.

But to see all of that requires “big picture” thinking and Republicans seem unable to understand anything beyond the spoon-fed bumper sticker talking points they’re given by the GOP and the conservative media.

We could spend 5,000 words and countless hours expounding on how clueless this is.  Health care doesn’t get less expensive if you “subsidize” it by penalizing those who work and earn by making them pay for those who don’t.  Period.  Wealth is something earned by individuals, not governments.  When government’s take other’s wealth to pay for government priorities, it leaves less for the individual who earned it to spend on their priorities.  This isn’t a hard concept to grasp, but seems beyond Mr. Clifton and our brilliant president.  While all the pie in the sky BS about a healthier American work force sounds wonderful, for the most part it isn’t the workforce that’s benefiting from this subsidy.  So while you may want to see this as a “far reaching” plus, it isn’t.  There are certainly ways to approach the lack of insurance, but this isn’t one of them.

Mr. Clifton then doubles down on his ignorance of economies with this “Underpants Gnomes” paragraph:

Minimum wage is another issue you see this with. Republicans constantly paint it as a “job killer” (it’s not) while also rallying against the millions of people who are on government assistance. Funny thing though, a good portion of the Americans who are on government assistance have jobs. If we made sure that no American working full-time had to rely on government programs just to survive, instantly we would save our country hundreds of billions of dollars over the years. Not only that, but when Americans have more money, they have more to spend. And what’s the biggest driver of economic growth? Consumer spending. More consumer spending means higher profits and higher demand, which means – more jobs.

But once again, when it comes to Republicans and explaining job creation, anything outside of “tax cuts create jobs” is often too complex for many of them to understand.

So, where again does the money come from to pay that $15 minimum wage?  The earnings of the business.  And what will a business have to do if it has to pay that wage?  Well it has some choices – raise prices, lay off workers, go out of business, etc.

Would someone have more money to spend?  Yes, if they weren’t laid off or their business didn’t close their doors.

And how big of a jump in spending money would they have?  Well initially a bit.  But then prices would adjust, because, you see, as the price of labor goes up, so do the prices of commodities and goods.  In other words, if they still have a job and they’re earning $15 an hour, fairly quickly prices will catch up with their gain and their purchasing power will be about the same as they previously enjoyed.  Meanwhile, businesses who can keep the doors open are raising prices and laying off workers, or considering automation as a replacement for workers.

Apparently this too is beyond the grasp of Mr. Clinton and the brilliant president.  Half the story, in both cases, is where Clifton stops.  And this is considered just freaking brilliant by the boob.

And you wonder why the left lives in a fantasy world?  This isn’t rocket science nor is there a dearth of examples proving these points.  They are everywhere, throughout history.  Look them up?  Oh, hell no … let’s continue to live in our fantasy orthodoxy and call everyone else stupid.

See climate change for further proof of this nonsense.



As predictable as the sun rising in the east, Obamacare is failing

Forget the Supreme Court ruling that may gut it, the program is failing all on its own as it is unable to keep or deliver on any of its promises.  Include with that the financial disaster it has become and you have the perfect vehicle for defining “a failure”:

ObamaCare’s supporters would like everyone to believe that with now functioning, everything is just fine and dandy. Contrary to what the conservative press (which I guess would include me) has been saying about the many problems of ObamaCare, Vox‘s Ezra Klein declared last September that “in the real world, it’s working.” In February, his fellow Voxland inhabitant Sarah Kliff rattled off eight ways in which the law had proved its critics wrong.

But has it? Not really.

For starters, the exchanges have enrolled about 3 million fewer people than the Congressional Budget Office projected in 2010. And far fewer of the enrollees are from the ranks of the uninsured than hoped. Medicaid enrollment is lower too, for the simple reason that states refused to expand the program.

Ezra Klein hasn’t visited the “real world” in years (Dale and I asked him once if he’d visited a VA hospital after he waxed enthusiastic about how good the VA was. Of course, he hadn’t).  And, as expected, the government’s predictions, which were used to justify Obamacare, were woefully wrong.  No surprise to some of us.


The core of President Obama’s sales pitch to America was that the program, which he called the Affordable Care Act, would “bend the health care cost curve” and save an average family $2,500 on their premiums each year. How would it accomplish this feat? Essentially, he said, by forcing uninsured “free loaders” who show up in the emergency room to obtain free care to either buy (subsidized) coverage on the insurance exchange or sign up for the expanded Medicaid program. The point was that if they had coverage, they’d get cheaper care sooner in a doctor’s office rather than more expensive care later in a hospital emergency room.

Things don’t seem to be working out that way. ObamaCare is indeed bending the cost curve — but up, not down.

In fact ER visits are up under Obamacare, not down (another supposed justification for the law).  As for rates?  They continue to go through the roof:

Every year, companies selling coverage through ObamaCare’s exchanges have to ask state regulators to approve their premiums for the following year — a practice more appropriate for the Soviet Union than an allegedly free-market economy. And this year, according to several news reports, some are requesting increases of over 50 percent.

In New Mexico, market leader Health Care Service Corp. is asking for an average jump of 51.6 percent in premiums for 2016. The biggest insurer in Tennessee, BlueCross BlueShield of Tennessee, has requested an average 36.3 percent increase. In Maryland, market leader CareFirst BlueCross BlueShield wants to raise rates 30.4 percent across its products. Moda Health, the largest insurer on the Oregon health exchange, seeks an average boost of around 25 percent.

Some states are even higher.

The reason is called “economics”.  It is a fairly simple concept to grasp.  When you subsidize millions who don’t pay full price or any at all with the money those who do pay full price pay, the cost curve for those paying has nowhere to go but up.  Surprise, that’s precisely what is happening, despite promises to the contrary (which we here knew were full of hot air when they were first uttered).

And there are more hikes on the horizon:

What’s more, these hikes are likely just a prelude to far bigger ones in future years. Why? Because two programs — risk corridor and reinsurance — that were meant to “stabilize” rates in ObamaCare’s first few years so that insurers could obtain the right mix of enrollees are set to expire next year. (The risk corridor program slaps a fee on insurance companies that have lower-than-expected medical losses, and compensates those that have more. The reinsurance program imposes a fee on insurance policies and funnels it to insurers with high-risk individuals.) With these programs gone, the challenge of maintaining a balanced risk pool will become even harder.

The expanded Medicaid program is no picture of robust health, either. It has produced no cost-saving decline in emergency room visits, nor has it contributed to hospital profitability, as was hoped.

What a freakin’ mess.  So?

So, to recap: ObamaCare has fallen short of its enrollment target, hiked insurance premiums, failed to cut down on ER visits, and flopped in its attempt to improve hospitals’ bottom line.

But its real problem is the lawsuit? Maybe treatment for delusions is covered under ObamaCare!

Hey, like I said, some people think the VA system is the cat’s meow.  There is no hope for them.


The bad, the worse and the ugly

A couple of economic notes and an environmental question.

On the econ side, unemployment.  The Mercatus Center explains our current unemployment situation and why the “official number” is a feel-good fantasy:

Alt-unempl-resize-websiteIn case you missed it, the real unemployment rate is in the 11% range.  Also note that before the recession, we were at around 9%.  We’re certainly doing better but why they continue to publish misleading numbers on the unemployment front is a mystery … oh, politics.  Never mind.

It’s better to be lied to and feel good about it than to know the truth.

Also, as a followup, the $15 minimum wage in SF and Seattle continues to take victims.  While neither has fully implemented the wage at present, its enough to push business owners into making decisions which are unlikely the intended consequence of the wage raise. We told you about Borderland Books in SF.   Here’s an example from Seattle:

Cascade Designs, an outdoor recreational gear manufacturing company based in Seattle, announced it is moving 100 jobs (20% of the workforce) later this year to a new plant it is leasing near Reno, Nevada. The company has offered some employees positions in Reno, but others must reapply.

Founder John Burroughs and Vice Chair David Burroughs blamed Seattle’s new $15 minimum wage, indicating it “nudged them into action.” According to the owners, Seattle’s new minimum wage would “eventually add up to a few million dollars a year.”

Once established in Reno, you may see further moves.  And:

The San Francisco Eater, a local publication following the city’s restaurant scene, predicts that the impact of the $15 minimum will likely lead many restaurants to close their doors this year. Abbot’s Cellar and Luna Park, popular locally owned restaurants, already made the decision to shut down. The owners both blamed the $15 minimum wage.

What’s $15 times zero?

Finally on the enviro front, where’s the outrage?  From CATO:

Nicaragua’s plan to build an Interoceanic Canal that would rival the Panama Canal could be a major environmental disaster if it goes forward. That’s the assessment of Axel Meyer and Jorge Huete-Pérez, two scientists familiar with the project, in a recent article in Nature. Disturbingly, the authors point out,

“No economic or environmental feasibility studies have yet been revealed to the public. Nicaragua has not solicited its own environmental impact assessment and will rely instead on a study commissioned by the HKND [The Hong Kong-based company that has the concession to build the canal]. The company has no obligation to reveal the results to the Nicaraguan public.”

In recent weeks we have seen similar opinions aired in the Washington Post, Wired, The Economist, and other media. In their article, Meyer and Huete-Pérez explain how the $50-billion project (more than four times Nicaragua’s GDP), would require “The excavation of hundreds of kilometres from coast to coast, traversing Lake Nicaragua, the largest drinking-water reservoir in the region, [and] will destroy around 400,000 hectares of rainforests and wetlands.” So far, the Nicaraguan government has remained mum about the environmental impact of the project. Daniel Ortega, the country’s president, only said last year that “some trees have to be removed.”

Some trees?!  Where are the enviros whackos on this?


Interestingly, despite this potential massive threat to one of the most pristine environmental reservoirs in the Americas, none of the leading international environmental organizations, such as Greenpeace, Friends of the Earth or the Sierra Club, has issued a single statement about the Nicaragua Canal.

We know for a fact that this is not out of lack of interest in Central America. After all, some of these organizations were pretty vocal in their opposition to CAFTA. Why isn’t the Nicaragua Canal proposal commanding the attention of these international environmental groups?

Why?  Because as Insty points out, “commies get a pass” on this sort of thing.


They call them “economic laws” for a reason

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 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.



From the Department of I Told You So

The subdepartment of “If You Like Your Coverage, You Can Keep Your Coverage“:

Small companies are starting to turn away from offering health plans as they seek to reduce costs and increasingly view the health law’s marketplaces as an inviting and affordable option for workers.

In the latest sign of a possible shift, WellPoint Inc. said Wednesday its small-business-plan membership is shrinking faster than expected and it has lost about 300,000 people since the start of the year, leaving a total of 1.56 million in small-group coverage.

Of course anyone with a brain and a passing understanding of economics and human nature saw this coming – despite the assurances of our elites. It is called “responding to incentives or disincentives” – something human beings have done since the dawn of our time.

Provide enough of a disincentive to maintain the status quo and you won’t. You’ll go with what is best for the business. And the incentive to drop health care plans has been provided by this awful ACA law. Now these people will go onto the exchanges and pick a plan with huge deductibles that will never be met in a year. They’ll effectively pay for their medical care. Or, we’ll pay for their medical care through subsidies.

Result? Well, as you can imagine with huge deductibles, people will likely go to the doctor less and one of the supposed reasons this law had to be passed was in order to stress and implement “preventive medicine”. But if you have a $6,000 deductible, and are a middle income family that wouldn’t qualify for subsidies, when are you going to visit the doctor? When whatever problem you have is so bad you have little choice. Of course, that’s the most costly way to do this, isn’t it?

So now we have a huge problem, don’t we? And what will we point to as the cause of that problem? That’s right … government intrusion. Oh, the good news? Their high deductible coverage will be portable. But we could have solved that problem without ever creating this health care monster we’re stuck with now, couldn’t we?


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