Tag Archives: Minimum wage

Obama’s Last Stand

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After five years of what could best be called mixed results the President’s State of the Union speech tonight likely is his last opportunity to make an impact on America’s path. How will/should he proceed?

During my long and varied career I always held a few things to be essential to my success. First among them was that its better to act decisively and be wrong than to not act.

As President Obama approaches the lame duck portion of his time as President, I feel comfortable in saying that his Presidency will likely be viewed as a below average one when the history is written. It’s not that there haven’t been accomplishments such as the ACA, surviving the financial crisis, and surviving an opposition who’s entire raison d’être was to block ANY legislation that came from the President. Rather it’s that Obama has never seemed to lead. He has picked his priorities poorly and worse than that, he never has seemed to understand that he owns the biggest bully pulpit on the face of the earth.

Tonight the President will own the stage. While many Americans don’t even know what the State of Union address is, never mind actually watch it, this is still the most watched political speech of the year. So what should the President do?

Many pundits believe that the President should again reach across the aisle and find common ground with Republicans. I believe that this would be a tragic mistake as Republicans would be happy to do nothing and run against the President’s record (or lack of one) in the midterm elections this November.

My choice would be for the president to state that he is making a partisan speech (he will be accused of this in any case) by saying that, “I am a partisan, a partisan of the overwhelming majority of Americans for whom this government no longer works”. I would go on to say something like, “We should all be ashamed and embarrassed by our performance in Washington.”

I would then go on to define a few priorities that I know are widely supported by Americans. This list would include increasing the minimum wage, increasing access to preschool, and reducing the deficit through select spending cuts and tax increases on the wealthy (capital gains, duh!). Interestingly, you will see that I have not included immigration reform on this list. This is because action on immigration is not a considered a priority by the majority of Americans. Next, I would clearly state that if these priorities are not accomplished within 30 days, I will take Executive Action to implement these changes to the extent that I am legally able to do so. The President then should be on TV and Social Media every day making his case and forcing the opposition to defend their positions.

Yes the Republicans will scream. But the goal of this is not to take Executive Action, it is to force both sides to find a deal, any deal on these issues. Laying down the gauntlet tells Republicans that they can try to stop the President from taking action but to do so will likely mean a trip through the courts. Imagine going on the campaign trail and explaining that you are suing the president from taking action that is wanted by the great majority of Americans. I just love the game theory here.

Now I’m pretty sure that Obama won’t do anything like this but a man can dream……..

Who Needs Washington?????

14, January 2014

On Sunday, the New York Times ran an interesting series of graphics. While the focus of the article was on how fast campaign finance money was changing the face of state and local elections, the article made me think of two themes that have been on my mind for awhile that stem from my view that paralysis at the Federal Government level is here to stay and that this paralysis will lead to a slow but steady delegitimization of this government.

The article discusses how state governments in 36 states are wholly in the control of one party of the other. In the majority of the cases it is the Republican party which did a much better job of using out of state money to offset Democratic demographic advantages.

What is IMHO much more interesting is the fact that in these “one party” states, governments have been much more able to take action on a host of issues than at the federal level. Thirteen states (Ironic) including Republican strong holds of Arizona, Florida, and Montana have passed legislation setting the minimum wage above the federally mandated $7.25 floor. With eleven more states looking to do the same in 2014, the federal minimum wage may soon be irrelevant.

We are seeing similar activity on a host of issues, some of which have been highly divisive. These issues include abortion and same sex marriage which are the two social issues that engender the most passion on the right. Even immigration which has always fallen within the purview of Federal law is now the subject of state laws in places such as California and Arizona. As you could imagine, states with Democratic rule are liberalizing laws that govern these issues while Republican dominated states have passed laws increasing restrictions. Not surprisingly, states with divided government have seen much less legislation passed on hot button issues.

Rather than do a detailed list of issues in which state governments have moved to the forefront of action, I’d rather discuss the whys and what it means. These are some of my not fully formed thoughts and I’d love to now what others think.

So It has become clear that ANY action of significance is unlikely to occur as long as one party sees itself as the opposition and the rules round making law allow this MINORITY to just say no without proposing any alternatives. This process has been building for some time. What we see happening in the states is a natural reaction to the inaction. I believe that there are good and bad elements to this.

It is clearly a good thing that people/states are moved to action. While I may not personally support some of the decisions made in various states, at least there is some resolution on important issues, and heck you could always move to the state that best reflects your views. Also, I would expect that over time the Federal government would move toward some of the ideas, especially those that gain a large consensus across the states. I also hope that contrary to the NY Times article that both sides will become better at targeting their campaign money to the races they can win. Assuming that then maybe we could just have a good old voter registration drive to get participation up. I still don’t understand why ANYONE who loves this country has a desire to make voting more difficult for any citizen.

There is a downside. The continued delegitimization of the government will lead other actors to fill the void. While these could be state and local governments, non profits, or even multilateral organizations, the most likely actor to step into the void are large corporates. As it is now, I believe that the only two governments that can act to counterbalance the power of corporations such as GE or EXXON are China and the United States. This is largely due to the size of their markets. If the relative power of the US Government declines, it is unlikely that smaller entities will be able to act as a counterbalance to corporate power. A return to the pre-Progressive Era where corporates operated unfettered would not be a good thing for most Americans.

My other thought is this. For most of my life I thought that the US style of democracy (representative) was superior to the type of democracy practiced in places like Canada and Europe (parliamentary). I no longer believe this to be the case. Our kind of democracy, in which we strongly seek to protect minority rights depends on a certain element of civility in legislation and debate. Unfortunately, with each successive term of congress, we move further away from the ideal. Additionally, our legislators have found ways to arbitrage the process to ensure that no agenda gets enacted, ensuring that the status quo will prevail. The fact that legislation does get enacted in state legislatures where the majority is not constrained by supra or extra majority rules I believe bears this out.

I know that these arguments are not particularly fleshed out. I welcome any comments, debates, etc to help think about 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.