Monthly Archives: December 2013

Greetings from the Land of Make Believe

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So today is my 518th day as a returning (rehabbing?) resident of the land of the free and the home of the…. well thats a long list. Anyone who has had to spend more than a few minutes with me knows that my transition back to America has had its ups and downs. For the first six months, I really struggled. Of course that was exacerbated by the fact that I actually thought there was a chance that we’d have a Republican Congress AND President. At one point I was wondering where the camera would be installed in my bedroom.

Over the past year, I have for the most part adjusted to Boston (see “Time Flies and so do I”). Its a nice town and it has the benefit of being close to our summer home in the Cape. Now if I could just get summer to last more than 2 months! We really do like it here. My yearnings for our former home in London have continued to decline over time albeit with occasional lapses. My visit earlier this month was one of these. I’m not sure if its a case of “Bright Lights, Big City” or “Lots of Friends, Big Ego”, but I really didn’t want to leave.

In addition to whatever social/food/travel differences exist, there are also many things that someone with left of center sensibilities has to learn to deal with in America. Theres the divisive government with one party viewing success by the other’s failure. We have the NSA spying because “they can”, not necessarily because it’s necessary, not to mention that I’m pretty sure that they have no f’n clue as to what to do with the information other than save it for future use. That should scare everyone who can remember, “Are you now or have you ever been a member of the Communist Party?” Of course, there’s guns. Every American should have one or TEN. These days my favorite is healthcare. Americans still don’t understand that they already had socialized medicine before Obamacare. It’s just that it was done in a way that if we put the 50 smartest people in the world into a room and told them to come up with the worst value for results process, they couldn’t possibly come up with the American health care system.

All of this is wrapped up in a nice little bow that is the fact that Americans believe that they are the best at EVERYTHING. While we are the best at lots of things, its not possible to be the best at everything. This belief just forecloses intelligent debate and discourse on many topics.

Anyway, thats not really why I’m writing this evening. Right now, I’m in Orlando with my just turned 10 year old daughter doing a tour of non-Disney theme parks. She is amazing! Funny, smart, great stamina (I wanted to leave the park before she did as I was exhausted) and so brave. She has gone on just about every ride at the two Universal parks and loved every minute. Before this trip she has been a reticent rider at best. Now, no fear. It has been great to spend so much time with her and build our bond.

The real point of tonights rambling is that IMHO, no where on Earth other than America could a place such as Orlando exist. I mean this in the best way possible. This truly is a land of fun and dreams. Even if I don’t take into consideration the surfeit of English accents, as you may know the Brits love Florida and theme parks, the place really is amazing. It’s also quintessentially American.

America is the place where the creative so seamlessly meets the commercial. As one walks through the Universal Studio parks, you realize that the thousands of people in the park are there to enjoy rides and shows based on movies that were blockbusters around the world. So not only did the movies; Harry Potter, SpiderMan,  Jurassic Park, and Shrek to just name a few, thrill millions of viewers and gross billions of dollars, the virtuous cycle continues in the park. 

Nowhere else could such mediocre casual dining food be so good and so much fun to eat. Theres Jimmy Buffett’s Margaritaville where performers make kids laugh while you have three drinks and dinner in 45 minutes. The worlds largest Hard Rock Cafe awaits you with the usual food and great music. I’ll bet there aren’t any BK Whopper Bars in Paris! Heck there’s even an NASCAR Cafe that can make this Yankee want to hit the track. photo-2

The best part of the whole thing is that everyone working at the parks is helpful and pleasant. We haven’t encountered a single surly person. Our visit has been truly a pleasure. Oh and before I forget, 75 degrees beats the heck out of 15.

So I guess theres nothing really new here. We already know that America’s greatest export is its pleasure culture. It ain’t Shakespeare, Mozart, or even Bergman but it is ours.

Know what? It’s not all that bad…….. 

On to Tampa!

Eastern Standard, Right on Time

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One night removed from a meal at Hamersley’s Bistro that could best be described as disappointing, we took a shot at Eastern Standard. This is the last meal out before the crush of holiday dinners so it was good to have a night that we didn’t have to do any cooking.

Eastern Standard is right in Kenmore Square and is part of the Commonwealth Hotel (as is Island Creek Oyster Bar).

The room is large with high ceilings, a long bar and lots of eclectic art. There are also nice tile floors in a number of areas. The menu is upscale gastropub. There is an extensive wine list with a lot of interesting wines and one of the most extensive beer lists that I’ve seen in Boston.

While we were hoping for a nice meal, we really didn’t have high expectations. We began with oysters and a charcuterie plate. There were four selections of oysters, all local. Very clean and delicious although the Barnstable (Hyannis) were the best. The charcuterie plate was a very pleasant surprise. All meats are cured in house and included country ham, an thin sliced italian sausage, four gras (excellent), sweetbread, and the surprise of the plate, turkey terrine. The Terrine tasted like stuffing. It was delicious!

Of course, this whole review is an excuse to tell you about the otherworldly Pork Porterhouse Chop. Now I usually hesitate to order pork chops as they tend to be dry. Tonight the menu hooked me by listing the following accompaniments; quince, bacon vinaigrette, sauerkraut. So the chop arrives at the table and its HUGE, bone-in. Im terrified of dryness but as I take my first slice the juices just flowed on to my plate. My first bite was delicious moist, tender with a slight BBQ flavor, but delicate. I was told that the secret is cold smoking. Now I need to figure that out! All this is even more amazing given the fact that the chop was almost free of fat! This was the best pork chop I’ve EVER had. I could go on but it would probably seem a bit oddly obsessive and you get the point!

My wife and kids had fish and steak. They said it was good, bit to be honest, I just didn’t care!

Now after a meal like that no one really needs dessert. Unfortunately, the menu hooked me again. I saw Butterscotch Bread Pudding!! I’m a sucker for anything butterscotch if for no other reason that it reminds me of my father who always had those little butterscotch candies when I was a kid. So I ordered and I ate. Amazing!! Reminded me of very good Sticky Toffee Pudding (those of you who have spent time in the UK will understand). It was sweet but not so much that you wanted to stop before it was all gone.

So now I’m home full, sleepy, and very happy. This is definitely a place to return to and will certainly be on the HKS foodies calendar for the spring. At $50 including drink, tax, and tip, its certainly good value.

Healthy Food for All

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You all know that Im a bit obsessed with food. Yes, occasionally I dream about it. After a semester at the Kennedy School my dreams have taken a different tack. Now I’m not just dreaming about eating food, but I’m dreaming about how everyone can have access to fresh and healthy food.

For those of us who live in more affluent areas near and in urban centers, we are fortunate to have access to an abundance of fresh meat, fruit, and vegetables. We can purchase items that are not mass produced by the six or seven massive conglomerates using an industrialized process to maximize yield, minimize price, and eliminate nutritional value.

As an example, here in Brookline, we have numerous shopping options ranging from large supermarkets to small specialty shops. Both options carry a wide range of healthy choices. Yet just three miles away, in Dorchester, the only options are small bodega like stores. These shops mainly carry processed foods such as Kraft Macaroni and Cheese or Manwich!! The few available fruits and vegetables are of inferior quality to what is available in Brookline. The true irony is that food costs more in our poorer neighborhoods than in affluent areas.

Now there are a lot of reasons for this and thankfully there are a number of ideas as to how we can fix this. Its important. Imagine not giving your loved ones healthy food every day and then sending them off to school to learn. Not having the right nutrition DOES negatively impact the ability to learn.

So here’s my loosely formed solution. I’d really like any of your thoughts or suggestions as to how to make this work. Or just tell me its plain crazy.

The solution involves the for profit sector, the not for profit sector, and in some cases the government sector.

Let us assume that most disadvantaged people still have access to the internet either at home or by mobile.

We can use large grocery chain’s (think Peapod) online capability we set up WIC/SNAP (food stamp) recipients to access online ordering and local delivery of groceries. This would also be open to non benefit recipients as well.

We know that Peapod will not deliver door to door in urban areas. My plan is to use local community centers as delivery/pick up points for groceries. Now grocers have an efficient drop point. This may incur some costs for appropriate storage and security but should be nominal.

The behavioral science aspect is when we access the want/should paradigm. We know that individuals tend to do what they should do as long as they are asked to do it in the future. We can encourage ordering by pricing food such that the further in advance people order, the lower the price of the groceries are. I would call this the Yodels/Broccoli paradigm. This combined with generally lower prices from large grocers will give consumers significant additional purchasing power.

This plan would attempt to encourage grocers to find additional ways to use pricing mechanisms to incentivize purchase of should items over want items. We know that gross margins at grocers are 25-30% so there is some ability to do this especially given the fact that these will be new customers (no cannibalization of existing sales).

Eventually, we would create capability to order pre portioned (but not pre cooked) meals delivered a week in advance. This would be of great help to lower income working families

Why do I think this will work:

– Solution involves government, non-profit, and profit sector

– Saves time for consumers who wont have to go to store

– Most people have computer or mobile access

– Grocers will see additional profit/market share oppty

– Easy to track via WIC/SNAP identifier

– Small capital costs (refrigerators in community centers)

– Long term health benefits

Again, its just an idea from a dream. I really would like to work on this but can use any help, ideas, or contacts that you may have.

Happy holidays………

Thankful

I am thankful that every morning when I wake up, there is a roof over my head, food on my table, and clothes on my back. No person should ever wake up without these things.

I am thankful that I never experience what it feels like to fear for my safety. No one should ever fear for their safety.

I am thankful that I live in a country where it is ok (for now) to spend much of my day criticizing it. Freedom of expression is a basic human right.

I am thankful that I have had the opportunity to go back to school and get to meet so many people of different backgrounds and ideas. I am thinking about things that I haven’t thought about since I was a young man. Education is also a basic human right and is the ultimate mind and door opener.

I am thankful for having friends and acquaintances around the world who make my life diverse and interesting.

I am thankful for having a few close friends who no matter how long its been always make me feel like we saw each other yesterday.

I am thankful for having a family that knows me, understands me, and still loves me. I couldn’t imagine a life without them.

 

Anecdotal Evidence of an Economic Recovery (or do men always dance on tables?)

As I finally arise after 10 blissful hours of sleep to a balmy 12 degree day in Boston, I am happy to be home. This is for at least two reasons. For those of you who read my previous post you know that I no longer like being away from my family, I missed them from the moment I left. Not to mention that we have our first big snow of the year coming and it will be nice to do a bit of sledding.

The second reason is that the 10 hours of sleep I got last night was approximately equal to the sum of sleep of the three previous nights. When I signed up for the red eye flight, I completely forgot that during the holiday season in London, festive drinking begins at noon and ends when no one will fill your glass any longer.

It really was a fun trip. I got to catch up with almost everyone that I had hoped to see. As is always the case for me in London we spent lots of time in debate about just about anything. It’s always great to be able to drop in to a conversation as if you had just been there yesterday. Had lots of great food capped by my favorite Lobster Roll at Burger and Lobster in Mayfair. The only difficulty was that by the time I got there I was either near or into double digits in terms of glasses filled (and emptied). To be honest, I’m not really sure as I am totally out of practice with competitive drinking.

This was the penultimate stop of the evening which led us to a bar that shall remain nameless in Mayfair. Upon our arrival at Midnight (legal closing time for bars in London) we were greeted by the sight of Fire Marshall’s entering the bar. Did that stop us? Nah! As we descended the stairs the sound and temperature climbed at a rapid rate. When we got to the basement we saw 200 or so people crowded into a barely lit room. It took me a minute to realize that the lack of lighting was a blessing. At the front of the room there were ten or so aged 40+ white men (bankers) dancing on tables. Not necessarily a sight for the feint of heart. This went on fueled by magnums of whatever the bar had left until one guy missed a step……

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This was my cue to begin the search for a cab. London isn’t NYC so you could imagine the pickings were slim…. Anyway, I survived and no I don’t dance!

The interesting take away was that the mood in London was nothing short of ebullient. Everyone I met was happy, relaxed, and hopeful. Now I get what you all are thinking, “of course they’re happy, they’re the 1%”. Thats fair but the past 5 years haven’t been fun for most of these guys and usually theres cynicism and a bit of resignation in their conversation. I saw none of that. Not to mention that the shops, restaurants, and of course the bars were filled with lots of people carrying lots of bags of stuff. BTW, if you haven’t been to London for the holidays, you must go even if its only for a few days. Similar to NYC but very different.

I keep hearing about GDP being up, unemployment being down, inflation staying low. I am always skeptical of any of these government issued statistics. now seeing people eating, drinking, and shopping in copious quantities……….that gives me hope.

Time Flies and so do I

photoI’m sitting here in the departure lounge at Logan Airport. Of course my flight is delayed as someone saw a few snowflakes this afternoon.

The delay gives me time to think and that occasionally leads to something that could pass as reflective!

I’m off to London, my favorite city in the world (as I have told all of you a million times) to see some friends for a quick boondoggle. As an aside, I am convinced that this bout of eating and drinking will give me the inspiration to finish my remaining papers for the semester at HKS. Ironically, it is precisely two years and one day since I retired from my job as regional head of a large hedge fund based in London.

It was an exciting life in London, great food, great travel, loads of history and culture, great friends. Leaving was one of the hardest things we have ever done. Of course the job was hard work and hard play. In reality London was the closing act of a role that lasted for 20 years. That role involved lots of time, lots of thought, lots of talking, and not a small amount of ego.

For those of you who haven’t been there, finance is as Malcolm Gladwell says, a game of confidence. Being good and being effective means that you always need to “be the guy”. Of course that’s not always free. My family really didn’t care if I was the guy. They just wanted me to be the dad, the husband. Many times after 14 hours of work it was difficult to change gears. It’s not that my family life wasn’t good. Its just that I always knew that it could be better.

Retirement meant relocation and we chose to come to Boston. To be honest, I was reticent at best. I knew no one here and I wasn’t going to work, at least right away. How would I connect with people. Having the 53 year old dad running the PTO meetings could seem a bit odd.

To make a long story short, it’s worked out just fine. We have in a reasonably short period of time started to grow roots as a family in a neighborhood. Expats don’t grow roots, I think they grow lots of branches.

My daughters are happy. They have a great school, great friends, and lots of activities that they enjoy. Kim has good friends, is involved with the school, and is swimming again. As for me well I’m one of the oldest students in the world although I’m trying really hard to “act” like a grad student. School is fun and the people are great. I have found some good restaurants, some good friends, and a couple of causes to keep my interest.  I have translated my hatred of the Yankees to a like/love of the Sox.

Most importantly, I have found that the thing I love most is being a husband and father. before starting school, I had 18 months at home. I was worried about what I would do. The time went so fast. Now that I’m in school theres a bit of balancing but nothing like before.

My kids are amazing, smart, funny, caring. Now we have two cats. The girls care for them as if they were their children. Amazing to watch. And the best part is that I’m not missing it.

Kim and I had a transition period. Having me at home was at times (most) a pain in her ass!!! I tend to meddle in stuff that I’m clueless about. But being with her every day is great. It really doesn’t matter what were doing as long as its together. I look forward to whats next for US.

I guess that the point of all of this is that where my family is, is my home and now that home is in Boston. I have no idea what our future holds other than that we will live it together. And so I know that it will all work out.

In the past I have always thought that London would at some point be my home again. Tonight as I sit here, I know that I’m just going for a short visit and then I’ll be coming HOME. Why do I know that? Because I haven’t left and I miss my girls already!!

So thanks for listening. For those of you that I won’t see soon have a great holiday, whatever you do…..

Just a Quick Thought on Immigration

This from a Boston University Study on Boston based startups. 

In the past 13 years there were 43 Boston Area Start ups that achieved a market value of more than $500 mm. 

Over half of these had an immigrant founder!!! Guess this isn’t shocking given that 40% of the Fortune 500 had an immigrant founder.

We definitely need to keep immigrants out of the USA!!!

 

Is it time to boycott the Mets???


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Last night before I went to sleep I got a message from the Boston Globe. “Jacoby Ellsbury and the New York Yankees have agreed on a seven year deal worth $153 million. My first reaction was, Typical Yankees. I wasn’t mad, just resigned and envious of the New York team that I haven’t invested most of my life in.

As a contrast, two weeks ago, the other New York team announced a big move. “Free-agent outfielder Chris Young has reached agreement on a one-year contract with the New York Mets, a baseball source confirmed to ESPN.com on Friday. The deal is for $7.25 million, a source said.”

While both players are 30 years old, the similarities end there. Last year Ellsbury hit .298 and stole 52 bases for the World Champion Boston Red Sox. He is a gold glove center fielder and lead off hitter. On the other hand Chris Young hit .200 with 12 home runs and lost his starting job with the A’s a year after suffering the same fate with the Diamondbacks.

Now those of us who are Mets fans are used to this. Over the past 38 years (the free agent era) we have watched other teams, particularly the Yankees pursue and land the best free agent players for their teams. The Mets on the other hand have for the most part avoided the best (read most expensive) free agent and typically gone after second tier players. Do any of you remember VInce Coleman?

Many of us have tried to convince ourselves that the Mets couldn’t compete with the Yankees, because they have so much more money. Why have we believed that? Both teams have luxurious new (somewhat publicly financed) stadiums, both own their own TV networks, and both play in the largest, richest city in the world. Maybe its that the Bronx is so much more luxurious than Queens!!!!!!

Once upon a time, New York was a National League city and the Mets consistently drew more fans than the Yankees. Now, its as if the Mets are the minor league team in town.

I can’t escape the fact that the problem with the Mets is the ownership. The real question is are the Wilpons stupid, cheap or both? 

To get a different look at this I have done a bit more than just look at payroll. What I have done is weighted each major league city by population and income. To be fair, for each city with two teams I divided the population in half. Then I looked at each team’s payroll in the context of the value of the team. While you may think that the Mets are being run like a mid market team, the results are clear. The Mets are the equivalent of the Houston Astros!!

Team Metro Area Population  Med Inc Regional Income (Millions)  2013 Payroll (Millions)  Ratio
Reds Cincinnati 1,979,202 22,947  $45,417  $106 0.23339%
Brewers Milwaukee 1,689,572 23,003  $38,865  $83 0.21356%
Royals Kansas City 1,776,062 23,326  $41,428  $82 0.19793%
Cardinals St. Louis 2,603,607 22,698  $59,097  $116 0.19629%
Pirates Pittsburgh 2,358,695 20,935  $49,379  $79 0.15999%
Giants San Fran 3,600,000 30,769  $110,768  $140 0.12639%
D’Backs Phoenix 3,251,876 21,907  $71,239  $89 0.12493%
Dodgers Los Angeles 8,200,000 21,170  $173,594  $216 0.12443%
Indians Cleveland 2,945,831 22,319  $65,748  $78 0.11863%
Phillies Philadelphia 6,188,463 23,699  $146,660  $165 0.11250%
Tigers Detroit 5,456,428 24,275  $132,455  $148 0.11174%
Rays Tampa 2,395,997 21,784  $52,194  $58 0.11112%
Rockies Denver 2,581,506 26,011  $67,148  $72 0.10723%
Nationals Wash-Balt 3,800,000 28,175  $107,065  $114 0.10648%
White Sox Chicago 4,600,000 24,581  $113,073  $119 0.10524%
Padres San Diego 2,813,833 22,926  $64,510  $67 0.10386%
Twins Minneapolis 2,968,806 26,219  $77,839  $76 0.09764%
Red Sox Boston 5,819,100 26,856  $156,278  $151 0.09662%
Rangers Dallas 5,221,801 23,616  $123,318  $114 0.09244%
Cubs Chicago 4,600,000 24,581  $113,073  $104 0.09198%
Braves Atlanta 4,112,198 25,033  $102,941  $90 0.08743%
Orioles Wash–Balt 3,800,000 28,175  $107,065  $92 0.08593%
Yankees New York 10,600,000 26,604  $282,002  $228 0.08085%
Mariners Seattle 3,554,760 25,744  $91,514  $72 0.07868%
Angels Los Angeles 8,200,000 21,170  $173,594  $127 0.07316%
Athletics San Fran 3,600,000 30,769  $110,768  $61 0.05507%
Marlins Miami 3,876,380 20,454  $79,287  $36 0.04540%
Mets New York 10,600,000 26,604  $282,002  $73 0.02589%
Astros Houston 4,669,571 21,701  $101,334  $22 0.02171%

This metric clearly is biased to the small market teams but it does make you think. If the economic opportunity is larger, and you believe that success creates higher attendance, merchandise sales and TV ratings, shouldn’t you want to spend more to field a successful team?

So either the Mets management think that they are stupid and that they will spend money poorly or they think the fan base is stupid and that fans will still spend a lot of money without getting a quality product. The latter is a low risk proposition if you are confident that you have a captive audience.

Lets look at a different metric. Here I will look at salary as a proportion of estimated franchise value. These values are from 2013 and are taken from Forbes

Team  2013 Payroll (Millions) Franchise Value Ratio
Tigers  $148 $643 23.02%
Reds  $106 $546 19.41%
Phillies  $165 $893 18.48%
Nationals  $114 $631 18.07%
Royals  $82 $457 17.94%
Giants  $140 $786 17.81%
Angels  $127 $718 17.69%
White Sox  $119 $692 17.20%
Pirates  $79 $479 16.49%
Cardinals  $116 $716 16.20%
D’Backs  $89 $584 15.24%
Rangers  $114 $764 14.92%
Orioles  $92 $618 14.89%
Brewers  $83 $562 14.77%
Braves  $90 $629 14.31%
Indians  $78 $559 13.95%
Rockies  $72 $537 13.41%
Dodgers  $216 $1,615 13.37%
Twins  $76 $578 13.15%
Athletics  $61 $468 13.03%
Rays  $58 $451 12.86%
Red Sox  $151 $1,312 11.51%
Mariners  $72 $644 11.18%
Padres  $67 $629 10.65%
Cubs  $104 $1,000 10.40%
Yankees  $228 $2,300 9.91%
Mets  $73 $811 9.00%
Marlins  $36 $520 6.92%

So once again, our beloved Mets have the 2nd lowest ratio of spending to the factor. This time its spending to value. So what the owners are being told is don’t bother to invest you will still be rewarded with a very high value. Of course, if THEY were smart, they would very quickly see what happens when you do invest. You become the Yankees who manage to have 3X the value for a very similar product just four miles away. Incredible.

My fellow fans. We have lived with this for most of the past 35 years. The problem is ownership. Unfortunately, we the fans enable ownership to continue to damage OUR franchise and essentially steal our money.

The bottom line is the Wilpon’s are STUPID AND CHEAP!!!!!!

The only way to let the Wilpon’s know that we are sick of this is to completely boycott our beloved Mets. Than means no going to games (even with free tickets), no watching on television, canceling our MLB packages if applicable, and certainly no purchases of Mets merchandise.

It will be painful but I want my team back. I want to care about games in September. I want to be able to not have to whisper that Im a Met fan!!! 

Lets do this!!!

Remember, Economics are Just Opinions and Opinions are Like……

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Some of you may be aware that this Thursday will bring strikes and rallies in 100 American Cities. These strikes and rallies will be held in and near fast food restaurants across the country. The strikers will be rallying in support of a living wage for fast food employees. Presently, the average fast food worker earns between $8-9 dollars per hour. This is significantly below the official poverty level in the United States. The strikers seek a minimum wage of $15 per hour ($30,000 per year assuming a 40 hour work week) and the right to organize.

This is an issue that is seemingly gaining steam. While there is no traction for a minimum wage increase at the federal level (Congress likely wouldn’t vote on observing Christmas if it was put to a vote), there are a number of states that have either passed laws for higher minimum wage or are debating them at this time.

Additionally, there seems to be increasing support from a diverse group of interests in finding a way to mitigate inequality. A number of economists including Joseph Stiglitz, Robert Reich, and Jeffrey Sachs have come out in support of raising the minimum wage as a way to create greater equality. They noted that the minimum wage has declined in real dollar terms from $12 to $7.25 in the past 45 years. Most interesting is the recent statement from Pope Francis Evangelii Gaudium, a manifesto for the renewal of the church. In the document the Pope decries trickle down economics and inequality.

[S]ome people continue to defend trickle-down theories which assume that economic growth, encouraged by a free market, will inevitably succeed in bringing about greater justice and inclusiveness in the world. This opinion, which has never been confirmed by the facts, expresses a crude and naïve trust in the goodness of those wielding economic power and in the sacralized workings of the prevailing economic system. Meanwhile, the excluded are still waiting. To sustain a lifestyle which excludes others, or to sustain enthusiasm for that selfish ideal, a globalization of indifference has developed. Almost without being aware of it, we end up being incapable of feeling compassion at the outcry of the poor, weeping for other people’s pain, and feeling a need to help them, as though all this were someone else’s responsibility and not our own. The culture of prosperity deadens us; we are thrilled if the market offers us something new to purchase; and in the meantime all those lives stunted for lack of opportunity seem a mere spectacle; they fail to move us.”

Of course, the other side is in an uproar. In addition to some of the usual suspects (Fox News, Rush Limbaugh) branding the Pope a Marxist or a Socialist, there is real concern among the business community around the possibility that their labor costs may increase. They realize correctly, that if the movement gets traction in the fast food sector and in some of the higher population stats that there will be a defacto national increase in the minimum wage regardless of the federal governments inaction. Walmart and other retailers are more than a bit interested in what happens this week.

The central argument against a minimum wage increase is and always has been the same. It is an oversimplified supply and demand argument. Basically for a given demand curve for labor, if price goes up, demand will go down. So it would follow that if the minimum wage goes up, then the people that the increase was intended to benefit would be hurt as businesses would cut employment. This argument is laden with a number of assumptions:

1) Businesses have no pricing power and would have to fully absorb the increased cost of labor. If we assume that this isn’t true (if you have been to the supermarket lately you know this isn’t true) then we understand that business will likely pass some of the increased cost along to everyone. This is especially true if ALL businesses are impacted by the increase in labor cost.

2) That there is a one for one relationship between labor costs and total costs. Again a fallacy. McDonalds labor costs are approximately 20% of revenue. Walmart’s are much lower, say 2-3%. So again, the cost of a Big Mac wouldn’t double. It would increase somewhat but by less than one initially assumes.

3) Large retailers and fast food restaurants can make significant cuts in labor and still serve their customers. Have you been to a McD’s or a Walmart recently??? Yes, I am sure that over time there will be continued technological innovation that will reduce the units of human capital needed to produce a unit of product. I don’t think that an increase in minimum wage will materially change the pace of innovation and I am certain that if Walmart uses any less labor we will all be able to “shop” there for free.

4) None of the increased money paid in labor will be spent in the stores/restaurants that pay the labor. Even Henry Ford understood that paying workers a living wage was good because they then bought stuff that you produced. Not to mention that turnover would decrease and worker satisfaction would be better. It shouldn’t shock any one that minimum wage workers are significant customers of fast food restaurants and big box retailers. Its likely that these entities would capture a significant amount of the increased money available to minimum wage workers in the form of increased sales.

Now there is a another point. At present, there are significant social service transfers (EITC, food stamps, housing credits) to the working poor. These people aren’t the welfare mothers of Ronald Reagan. They are people who work hard in jobs that don’t pay well. We may not like the fact that some of our taxes go to support the working poor but I suspect that most of us would like the results of not supporting them even less. It’s important to note that these government subsidies are not just a transfer of wealth to poor people. They are a direct subsidy to large for profit entities in the form of wage subsidies that allow them to pay less. Also, these wage subsidies get spent in their businesses.

Now, I’m not sure which is more economically efficient higher minimum wages or government assistance, but subsidizing both poor people and corporates is essentially two government transfers and we all know how inefficient the government is. Wouldn’t it just be better to force business to pay a living wage and have them allocate their costs accordingly?

All I ask is that on Thursday you consider the state of minimum wage workers and avoid fast food restaurants and large retailers. It won’t be all that difficult and if enough of us act it will send a message to businesses to do the right thing.