Tis the season of minimum wage hike demands and fast food protests again. Frankly I don’t have a problem with wage hikes … if they’re voluntary. I do have a problem with coerced wage hikes, however. And that’s precisely what any rise in the federal minimum wage amounts too. It is feel good legislation that uses the force of government to coerce businesses into paying employees more for jobs the businesses don’t deem worth the cost imposed. It is feel good legislation that religiously and studiously avoids the laws of economics.
For instance, what is one of the effects of raising the minimum wage? Job loss. How so? Well, here’s a real world example:
President Obama recently signed an executive order that will increase the minimum wage for employees of companies with new federal contracts beginning Jan. 1. At that time, the minimum wage for all federal contract workers — not just those working for fast food concessions — will increase to $10.10 from the current $7.25. It is not yet known how far-reaching the effects will be for contracts on military installations.
…new Labor Department rules issued last fall for fast food workers on federal contracts under the Service Contract Act require an increase in the minimum wage for such employees, varying by region. The rules also require payment of new, additional “health and welfare” fringe benefits at a rate of $3.81 per hour to those employees.
Four restaurants, including three McDonald’s outlets, will close within the next three weeks on Navy installations, according to Navy Exchange Service Command officials.
And two other contractors — a name-brand sandwich eatery and a name-brand pizza parlor — have asked to be released from their Army and Air Force Exchange Service contracts to operate fast food restaurants at two other installations, according to AAFES officials.
A source with knowledge of military on-base resale operations said the issue likely has to do with two new government regulations — one implemented, one pending — that will affect wages for contract workers in such on-base concessions.
Action/reaction. Who loses? Well what’s zero times the new minimum wage? That’s what the former workers of those restaurants can look forward too in the near future. Will other fast food outlets take their place? Possibly – but then as another law of economics points out, businesses do what they do for profit, consequently costs incurred are usually passed on to the consumer in the form of price increases for the product. So who will get screwed then. In this case sailors making about 23K a year. Probable result – business will be down because fewer of their customers will be able to afford their prices with the frequency they once did.
As usual Obama has done this by executive fiat. And, it appears the minimum wage hike may or may not have any life in Congress (even with dopy old Mitt Romney coming out for it). But the debate and the protests roll on. For instance we have today’s fast food protests which are alleged to be happening world wide (backed by about $15 million SEIU dollars here in the US).
Here’s an example of what they’re saying:
Naquasia LeGrand, 22, of Brooklyn, says this was her sixth protest since 2012. She has worked for three years as a cashier at Kentucky Fried Chicken in Park Slope, an affluent neighborhood in Brooklyn. She says makes $8 an hour and pays $1,300 a month for her apartment. “We live in New York City — a multibillion dollar city,” she says. “These corporations … are making all this money. It’s only right that we (workers) come together.”
The sense of entitlement is overwhelming.
So let’s break down what she does for her $8 an hour. She says “may I help you” to a customer, a customer gives her their order which she enters via a touchpad computer. The computer computes and totals the order. She enters the amount of cash tendered and it tells he how much change to give back. Or she swipes a credit card, waits for the receipt to print and hands both back to the customer. At some point after that, she hands the customer a tray with food on it or a bag containing it.
Guess what else can do most of that?
And what can the employer know will never happen with this? Well, it won’t be out in 6 protests in 3 years and won’t have an attitude every day it cranks up and goes to work. And other than initial cost and maintenance costs, it will likely be more accurate than a human, faster than a human and cost less than a human in the long run. The technology is already here and as it proliferates it will get cheaper and cheaper. And it is proliferating. Guess who just bought 7,000 of them?
The point of course is when costs go up businesses have to consider their options, especially if they’re in a very competitive industry – like fast food. They know that they can only pass on a certain percentage of higher costs to their customers. So they have to look for alternatives to doing that. One of the fastest and easiest ways to increase the bottom line is to reduce headcount. Another is to automate low skill jobs. What Ms. LeGrand is doing is inviting her employer to consider one of those options if higher wages are forced on them. And there are few jobs requiring less skill at a fast food joint than cashier/order taker. See picture above for confirmation.
Every time the minimum wage goes up, it prices some jobs out of the marketplace. Anyone – who usually fills those jobs that get eliminated? Low skill workers. The one’s who need jobs, any job, the worst. Instead of letting the market have the ability to set the worth of work, the government imposes a wage floor and essentially outlaws any wage below that floor.
Of course that doesn’t change the worth of the work to the potential employer. A $6 an hour job is still worth $6. Only a fool is going to pay $10.10 or $15 or whatever above that an hour. So the work goes undone and a person willing to do the work for that price goes unhired. Instead, other options and substitutes are considered, like automation or contracting it out overseas where labor costs are cheaper. Why do you think so much is “made in China?”
The do-gooders are our own worst enemies when it comes to this. Its all about them feeling good about helping the “little people”. They never look beyond that to the real consequences of their do-goodism. There are a couple of reasons they don’t: A) it is apparently beyond their understanding and B) it’s all about them feeling good about themselves, not what happens afterward.
The “market” is stuck with the consequences. And when it all goes tango uniform and what people like me predicted comes true, we’re treated to claims that the cause was “market failure” (btw, read this great rant on “market failure”). That’s about the time you see people like Ms. LeGrand, the SEIU, Harry Reid and the usual suspects start talking about hiking the minimum wage again.
And the cycle repeats.
So a day or so ago, I talk about how regulation and government intrusion is helping to kill entrepreneurship and, as a result, small businesses. The same problem, as we all know, is also exacerbating the unemployment picture. A prime example? That odious law known as ObamaCare.
The US Chamber of Commerce blog has this chart for us to peruse. It is all about the recently implemented “Health Insurance Tax”, aka “HIT”: As this awful law continues to be implemented when it is politically convenient for the Democrats, we see even more disaster lurking for those who are employed and actually “like their insurance and like their doctor”. But HIT is already taking a toll.
The National Federation of Independent Business’ Research Foundation estimates that the Health Insurance Tax (HIT) will result in a reduction in private sector employment of 152,000 to 286,000 jobs by 2023, with 57 percent of the job losses coming from small businesses. This will amount to a reduction of U.S. real output (sales) by between $20 billion to $33 billion during the same time frame.
Just what we need – another “hit” to employment and a “hit” to GDP. But it is clear the Democrats don’t really care about that. As one of our low information commenters is want to say “a few eggs must be broken” to make an omelet … or something. Any inanity will do when it is clear that a law is a bust and a failure. As the Chamber of Commerce blog notes:
The HIT, which went into effect on January 1, 2014, levies a tax on health plans sold on the fully-insured market. Eighty-eight percent of it is made up of small businesses. Revenue from the tax will rise by 41% in 2015 and reach $14.3 billion in 2018.
“Small businesses are crucial to rebuilding an economy that allows all Americans to prosper,” Katie Mahoney, Executive Director of Health Policy at the U.S. Chamber said. “We need to work to find ways to ensure small businesses and their employees have the tools to build on their current success, not hinder future growth.”
You’d think what she says would be fairly common knowledge, but apparently the deluded administration that runs this country thinks we’re coming out of the economic malaise it has worked so hard to keep in place, and thus its time for another little shot to the head of small business.
With the HIT – mission accomplished.
You all know the nursery story about the Golden Goose. Well, as we head into “Recovery Summer V” with no real recovery in sight, subject to false unemployment numbers and pitiful quarterly GDP earnings, it might be useful to look at something else that is likely a factor in all of this:
Business dynamism is the process by which firms continually are born, fail, expand, and contract, as some jobs are created, others are destroyed, and others still are turned over. Research has firmly established that this dynamic process is vital to productivity and sustained economic growth. Entrepreneurs play a critical role in this process, and in net job creation.
And all of that is a function of what?
That evil thing called “capitalism”. Yup, evil capitalism encourages entrepreneurship and through that cycle, we see the market at work – creating profit, which creates jobs, which expands businesses and creates more of them and more jobs and more wealth and … etc., etc., etc. It is that repeating cycle that has, at least till recently, gotten us where we are in terms of wealth and power as a nation.
Not government. Government is a net leech. It sucks the blood out of productivity in the form of taxes. But government also plays another role – as a regulator. Most look at that as a necessary evil. But most governments always go overboard with their regulatory regimes and end up making it harder and harder for entrepreneurs to do what they do best. The Brookings institute has taken a look at this and found that over the past few decades, the entreprenurerial role has declined and, as a result, we have, for the first time, seen more businesses exiting the economy than entering it:
Now Brookings tries to stay claim this can be reversed, even though it is such a widespread trend it should alarm us all.
In fact, we show that dynamism has declined in all fifty states and in all but a handful of the more than three hundred and sixty U.S. metropolitan areas during the last three decades. Moreover, the performance of business dynamism across the states and metros has become increasingly similar over time. In other words, the national decline in business dynamism has been a widely shared experience.
While the reasons explaining this decline are still unknown, if it persists, it implies a continuation of slow growth for the indefinite future, unless for equally unknown reasons or by virtue of entrepreneurship enhancing policies (such as liberalized entry of high-skilled immigrants), these trends are reversed.
Note the oblique way Brookings points to government, but nevertheless identifies the problem. The phrase is “entrepreneurship enhancing policies”. And what would that look like? Well Brookings thinks liberalizing entry of high-skilled immigrants might to the trick. I, on the other hand, think a thorough review of the regulatory regime and revocation of all unnecessary regulations along with those found to punish or hinder entrepreneurship would have a much speedier and positive effect than the Brookings suggestion.
Certainly, we know why there was a precipitous drop in 2008, but again, what has the government, in terms of policy, done to ease the situation? Nada. Nothing. Except play a little crony capitalism (i.e. pick winners and losers) in the green energy game. And, of course, most of their “winners” have gone belly up.
As a consequence of this refusal to consider steps concerning rolling back regulations (and, instead heaping even more on the books), we see the trend get worse on both the entry and exit levels.
Entrepreneurship IS the “Golden Goose” of capitalism. One of the big reasons our economy continues to lag badly can be found in the chart above. And what has this administration done in 5 plus years to address this problem? Well, to be honest, it’s done more to exacerbate it that help it. Thus the Golden Goose on life support.
All hands prepare for “Recovery Summer VI”. And VII. And VIII …
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.
If I’m not mistaken, not a single Obama budget (those few he’s submitted) over the years has gotten even one vote when it hit Congress. And that includes votes from Democrats.
This year is likely to be no exception.
Much of the president’s proposed budget’s rosy projections will require considerable tax financing and political restraint to come to fruition. If revenues are lower than anticipated or spending is not restricted as planned, the ten-year debt picture will look quite different. I have noted before that President Obama’s later mid-session review budget differed considerably from his early budget projections. Early revenue and outlay projections were higher than actual amounts, while deficit spending surged much higher than anticipated from 2010 to 2012. This budget will likely mis-project critical variables as well. The rosiest projections all too often turn out to be the most disappointing.
Talk about an understatement. And the rosy projection? Well here it is compared to the CBO projection:
You have to chuckle at a miss that bad. In the outlying years, look at the percent of GDP the CBO projects vs. Obama. Any guess as to which projection is most likely of the two?
Go back to a key line ins De Rugy’s analysis:
If revenues are lower than anticipated or spending is not restricted as planned, the ten-year debt picture will look quite different.
Point to a moment in recent history where our profligate politicians have actually followed a restrictive spending plan that would have the effect Obama says it will?
Yeah, I can’t point to it either.
Regardless, however, we’re supposed to believe that if the plan is followed as layed out in the Obama budget, we’ll see long term debt reduction.
Unfortunatly the next chart doesn’t at all support that claim:
In every year projected, spendin is greater than revenue. So what they’re assuming is massive growth in the eoncomy to make the debt they pile up in the later years a smaller percentage of the GDP.
Really? Taxes are going to go up, government spending will also go up and yet somehow the private economy is going to surge (10 more “recovery summers”, eh?)? Obama plans spending and taxation as a percentage of GDP that are at or near historic highs, but we’ll see huge economic growth to support that?
Wow, if you’re not flying the red BS flag, you need to take an Econ 101 class.
Yet this is what the President of the United States is presenting as a functional budget for this country 10 years into the future.
We’ve been told over the last few years that our economy is in a slump but not to worry. It’s temporary. The administration is on it. It’s going to be fixed.
What, we’ve had 5 recovery summers and are heading into our 6th?
Well, the CBO, that office the administration loves to cite when it suits them, has decided that this economy, the Obama economy, isn’t an outlier and we should get used to it:
The part of the past that you deem most relevant can be critical in determining your outlook for the future. And nowhere is that clearer than in the changing economic forecasts that come out of the Congressional Budget Office.
This year’s short-term and long-term economic forecasts are substantially worse than last year’s, even though the economy performed better than expected in 2013. What changed was that the C.B.O. economists essentially decided that they would no longer treat the recent years of poor economic performance as a sort of outlier. They have seen enough of a slow economy to begin to think that we should get used to sluggishness.
They think that Americans will earn less than they previously expected, that fewer of them will want jobs and that fewer will get them. They think companies will invest less and earn less. The economy, as measured by growth in real gross domestic product, will settle into a prolonged period in which it grows at an average rate of just 2.1 percent. From 2019 through 2024, job growth will average less than 70,000 a month.
So, how does it feel? You’ve lived through the “Golden age” and are now relegated to … this. Slow to non-existent job growth. Regulation out the wazoo. Rising health care costs. Taxes eating into earnings and no end in sight.
This is the economy this administration has helped fashion with an insensitivity to the economy and a policy cluelessness that is second to none. The fact that they’re still pushing a raise in the minimum wage in the face of half a million job losses (conservative estimate) says it all.
You reap what you sow, or don’t sow, in this case. What they didn’t sow was economic policies that would get the economy moving, create jobs and keep us in that Golden age. Instead we got ideology first, regardless of the economic consequences.
And this is the result.
As CBO says, get used to it.
A poll came out the other day saying that the majority of American’s first priority is unemployment. And it should be given the incredible low we’re now suffering in labor force participation.
So what bright idea are Democrats pushing in spite of that? Hey, let’s raise the minimum wage?
Result? Well, even the CBO, the Dems favorite “go to” agency to support their ideas (when it actually agrees, of course), doesn’t see this as a particularly bright idea if they’re concerned about the people’s priority:
Once fully implemented in the second half of 2016, the $10.10 option would reduce total employment by about 500,000 workers, or 0.3 percent, CBO projects.
Notice it says reduce “total employment” by 500,000. It also says it is only a projection and that it could actually be higher than that.
But, but … it will help the poor!
The increased earnings for low-wage workers resulting from the higher minimum wage would total $31 billion, by CBO’s estimate. However, those earnings would not go only to low-income families, because many low-wage workers are not members of low-income families. Just 19 percent of the $31 billion would accrue to families with earnings below the poverty threshold, whereas 29 percent would accrue to families earning more than three times the poverty threshold, CBO estimates.
Or said another way, Democrats are willing to see a half million plus lose their jobs to serve 19% (and that assumes that all of the 19% keep their jobs).
But, but … it will give the poor more to spend!
Moreover, the increased earnings for some workers would be accompanied by reductions in real (inflation-adjusted) income for the people who became jobless because of the minimum-wage increase, for business owners, and for consumers facing higher prices.
Those are facts, folks. Democrats don’t deal in facts, they deal in emotions … and if they can pass a minimum wage bill, they’ll feel wonderful about themselves. And if they can’t, they’ll blame it all on the mean old Repubicans who want you to be able to keep your job or something radical like that.
I wonder just how intelligent the bulk of Americans are. From a Quinnipiac poll:
American voters support 71 – 27 percent raising the minimum wage. Republican support is 52 – 45 percent. Given several options:
- 33 percent of voters say increase the minimum wage to $10.10 per hour;
- 18 percent say increase it from the current $7.25 per hour to something less than $10.10;
- 18 percent say increase it to more than $10.10 per hour;
- 27 percent say don’t increase the minimum wage.
Raising the minimum wage will lead businesses to cut jobs, voters say 50 – 45 percent, with Republicans seeing job cuts 68 – 29 percent and Democrats saying no 65 – 29 percent. Independent voters expect job cuts 51 – 45 percent.
We’re faced with the lowest job participation numbers in a long, long time, our economy is just starting to recover, a majority of Americans know that raising the minimum wage will lead “business to cut jobs” and yet, the majority also want to raise it anyway (to include 52% of “Republicans”).
It makes you just want to throw up your ands and say “screw it”.
The Bloomberg Consumer Comfort Index moved into the minus 20s for the first time in 10 weeks, at -29.4.
Initial jobless claims rose 11,000 last week, to 379,000. The 4-week moving average rose 14,750 to 343,500. Continuing claims rose 94,000 to 2.884 million. These are all holiday numbers, though, so the week-to-week number is pretty volatile.
The Philadelphia Fed Survey’s General Business Conditions Index rose 0.5 points to 7.0 in December.
Existing home sales fell a sharp -4.3% in November, to a 4.9 million annual rate.
The Conference Board’s index of leading indicators rose 0.8% in November.
The Commerce Department’s final GDP revision for the 3rd Quarter was revised sharply upwards to a 4.1% annual rate. The GDP Price Index remained unrevised at 2.0%. Much of the revision came from increases in personal consumption expenditures, higher exports, and lower imports.
3rd Quarter corporate profits were revised upwards to $1.869 trillion vice the initial estimate of $1.872 trillion.
The Atlanta Fed Business Inflation Expectations Survey was unchanged at 1.9% in December.
The Kansas City Fed Manufacturing Index fell sharply in December to -3 from last month’s 7.
The Fed’s balance sheet rose $14.1 billion last week, with total assets of $$4.008 trillion. Reserve Bank credit increased $53.0 billion.
The Fed reports that M2 Money Supply increased by $17.5 billion last week.
You tell me. Robert Samuelson:
The presumption of strong economic growth supported the spirit and organizational structures of postwar America.
Everyday life was transformed. Credit cards, home equity loans, 30-year mortgages, student loans and long-term auto loans (more than 2 years) became common. In 1955, household debt was 49 percent of Americans’ disposable income; by 2007, it was 137 percent. Government moved from the military-industrial complex to the welfare state. In 1955, defense spending was 62 percent of federal outlays, and spending on “human resources” (the welfare state) was 22 percent. By 2012, the figures were reversed; welfare was 66 percent, defense 19 percent. Medicare, Medicaid, food stamps, Pell grants and Social Security’s disability program are all postwar creations.
Slow economic growth now imperils this postwar order. Credit standards have tightened, and more Americans are leery of borrowing. Government spending — boosted by an aging population eligible for Social Security and Medicare — has outrun our willingness to be taxed. The mismatch is the basic cause of “structural” budget deficits and, by extension, today’s strife over the debt ceiling and the government “shutdown.”
You know, we keep saying this is “unsustainable”, yet we keep refusing to face the problem head on and do anything about it.
This little bit of political theater isn’t going to change that and we all know it. The last paragraph identifies the problem. What apparently isn’t understood, though, is government is not the solution. And big government simply makes the problem worse because it sucks down more and more of the GDP.
The solution is both painful and difficult. And, of course, no one wants to face that fact, certainly not any politician.
So the can gets kicked down the road – as you know it will before any of this ever begins. None of the politicians want to be “the ones” in power when all of this collapses.
For whatever reason, after WWII, we decided to change the purpose of government from “night watchman” to “Santa Claus”. Maybe it was the horror of war. Maybe it was the huge surge in post-war prosperity, but like the story of the goose that laid the golden eggs, we’re about to kill the goose.
So what does that mean?
As economist Stephen D. King writes in his book “When the Money Runs Out: The End of Western Affluence”:
“Our societies are not geared for a world of very low growth. Our attachment to the Enlightenment idea of ongoing progress — a reflection of persistent postwar economic success — has left us with little knowledge or understanding of worlds in which rising prosperity is no longer guaranteed.”
And that fact alone makes any recovery from this mess even less likely. We’ve been able to stumble along and put off the inevitable because we have managed to have “persistent postwar economic success”. But if you look at economic projections for the future, they don’t show the historical growth that America has enjoyed since the ’50s. They show European type “growth”. They show slow growth as the “new normal”. Why?
Lindsey attributes U.S. economic growth to four factors: (a) greater labor-force participation, mainly by women; (b) better-educated workers, as reflected in increased high-school and college graduation rates; (c) more invested capital per worker (that’s machines and computers); and (d) technological and organizational innovation. The trouble, he writes, is that “all growth components have fallen off simultaneously.”
As it seems now, Greece is our future. Nothing, politically, is going to be done about it, despite the current political theater. Neither the politicians nor the citizens want to face reality. And as it is shaping up, it isn’t a matter of “if”, but “when” it all folds in on itself like a wet cardboard box.