4/9/13  Minimum Wage, Part Four

Some years ago, I read an article where an individual said that Republicans lacked the “moral courage” to raise the minimum wage.  Partisanship aside, when has it ever taken “moral courage” to pander to the economic ignorance of the electorate?

Where is the “moral courage” in passing laws that require others, in this case employers, but not you, to make sacrifices? It’s so easy to be morally superior with someone else’s payroll.

Economic fundamentals aside, where is the morality in blaming poverty on employers, which is an implicit, if unrecognized, assumption of minimum wage laws?

Where is the morality in a law that takes away the freedom of individuals to sell their labor for less than what is considered  “minimum” by moral busybodies? Who are you to tell me I can’t take a job as a night watchman, or any other job,  for $5.00 an hour?

Where is the morality in a law that has unquestionably proven to cause higher unemployment for unskilled and inexperienced workers, especially black teenagers? Is this any way to treat the poorest among us, to deny them opportunity for the sake of a “moral courage” that is really just pretense and ignorance?

At what point does a wage rate become “moral?” Is $20 an hour more “moral” than $10 an hour? If a $20 per hour minimum wage were adopted tomorrow, it would quickly become apparent that it isn’t the employer who really pays wages.  Also, those who advocated $20 per hour would quickly get to discuss, face to face,  the extent of their moral superiority with unemployed people whose old jobs paid less than $20 per hour.

Real moral courage, in the context of minimum wage laws, would be to abolish them, something we’ll never see. Politicians are too afraid of the “moral outrage” they would face from their economically unenlightened constituents.

Perhaps “unenlightened” is the wrong description.  A better one comes from the economist Walter Williams,  who had this to say in his May 26, 2010 column, “Minimum Wage Cruelty: Update.”

“Poor people are not poor because of low wages. For the most part, they’re poor because of low productivity, and wages are connected to productivity. Congress can easily mandate higher wages, but they cannot mandate higher worker productivity or that employers hire a particular worker in the first place.  The late Sen. Ted Kennedy, echoing the vision of many, said in his support of higher minimum wages, ‘I believe that anyone who works 40 hours a week, 52 weeks a year, should not live in poverty in the richest country in the world.’  It’s breathtakingly stupid to think of minimum wages as an anti-poverty tool. If it were, poverty in such places as Haiti, Ethiopia and Bangladesh could be instantly eliminated simply by proposing that these country’s legislators mandate a higher minimum wage.”

Let me rephrase that: People, and their elected representatives, who think that minimum wage laws are a way to fight poverty are BREATHTAKINGLY STUPID.

Personally, I’d give the man in the street the benefit of the doubt, because most of us don’t spend a lot of time thinking about economics, let alone minimum wage laws.  The same doesn’t apply to most of our elected representatives, who, on the subject of minimum wages, can best be described as breathtakingly stupid moral cowards.

Other than that, I have no opinion on the topic. (;~ )

4/21/13 Fat Cats and Racists, Part Three

“White liberals are the most racist people there are, because they put blacks in a box and insist that they think one way — and if they don’t, they attack them as illegitimate, all the while denying that their policies destroy blacks.”  Dr. Ben Carson

“If I have learned one thing from life, it is that race is the engine that drives the political Left.”  Ward Connerly

How do you define “racism”?  This is not a trivial question.  As discussed in my last article, racism has become an essential weapon in the Democratic Party’s arsenal, and it has also become a big industry in America.

How many people, for example, would lose their jobs if the Almighty made us all one race tomorrow? Hundreds in the Justice Department’s Civil Rights Division for sure, hundreds more at the Labor Department’s EEOC, and thousands more around corporate America as all those “diversity” personnel jobs go POOF!

A cynic — or maybe a realist– would say that since so many people have a vested interest in “racism”, it is with us to stay, in spite of what the Almighty might do, or in spite of whatever the reality of racism is.

I was reminded of all this last February when HUD issued a rule “clarifying” when certain practices may violate the Fair Housing Act as a result of discriminatory effect, even when there is no evidence of discriminatory intent.

This is called “disparate impact“, where racism is alleged to exist even when nobody knows it does. Disparate impact as a legal concept has been around for 40 years or so. It is an attempt to weed out standards that unknowingly discriminate against minorities, women, etc. It is usually associated with employment and housing issues, but is rapidly spreading to every area of the law.

Thomas Sowell has said of it: “In the legal system, ‘disparate impact’ dogma has been a gold mine for the race industry.”

In essence, if you have standards that determine to whom you will lend money to buy a house, or standards that must be met before you rent an apartment, or standards required for a job you are trying to fill, etc.,  you had better be able to justify those standards as essential to the task at hand if those rules result in a disparate impact on blacks, women, short people, whomever, as determined by numerical, or statistical outcomes.

As you can imagine, things get a little subjective in the real world, where somebody will question the need for fire fighters to be able to carry 50 pounds up five flights, or whether a 60 on a test is really required when maybe a 50 would be good enough. The burden of proof in these cases is on the defendant, contrary to normal legal practice.

The Supreme Court is long overdue to decide on disparate impact and may do so in the near future. In the meantime, if you think this is a lawyer’s dream, you’re right. If you think many corporations and other effected groups just say “To Hell with it”, and go with quotas to avoid lawsuits, you’re right. Gosh, I wonder which party gets BIG money from lawyers?  It isn’t the Libertarian Party.

You’re probably saying,  “OK, Burro, what does all this have to do with defining racism?”  Well, about the time HUD came out with their “clarified” disparate impact rules, Congress and various states, New York and New Mexico among them, were emoting about the need to raise the minimum wage.

A New York Post editorial spotted a connection. The Post cited a study showing for each 10 percent hike in the minimum wage, white teens with no high school degree experienced a 2.5 percent drop in employment, and black teens a 6.5 percent drop, The Post went on to say, that since New York was proposing a 24 percent hike in the minimum, that would mean employment will fall 6 percent for young whites, but 15 percent for young blacks.

The Post then asked: “Why isn’t the New York Civil Liberties Union suing on the grounds of blatantly disparate impact of any minimum wage hike?”

A cynic might say they aren’t suing because disparate impact only applies, by definition, to unintentional acts of discrimination. The disparate impact of minimum wage laws on black teenagers has been well known for at least 40 years.

In an earlier article, “Increasing Teenage Unemployment, Especially Black Teens”, I quoted Milton Friedman from an interview in 1973: “I‘ve often said the minimum wage rate is the most anti-Negro law on the books.”

What has changed in 40 years? Nothing. Last month, Bloomberg News reported that while overall unemployment fell to 7.7 percent in February, black teenage unemployment rose to 43.1 percent. It was 28.9 percent in November, 2007 at the start of the recession. Overall teen unemployment last February was “only” 25.1 percent.

So, back to the question:  How do you define “racism”? It used to be a term connoting malevolence, but today it can mean only a statistical deviation from what someone thinks should be the norm. Of course, anybody who opposes any liberal position is in danger of being called a racist. For a recent example, from The Daily Caller last April 1: “The Student Government Association at John Hopkins University has denied official recognition to a group of pro-life students, and one SGA leader privately equated them with white supremacists.”

Considering the statistical breakdown of abortions by race, it is obvious that in this case statistics were ignored, something all of us are prone to do when the facts don’t match our opinions.

Consequently, even if you unknowingly advocate policies that severely disadvantage certain groups of minorities, in this case black teenagers, don’t be surprised if somebody accuses you of racism. If this is an unintended consequence, a “disparate impact“, of minimum wage laws, than people of good will should do something about it.

While most people support minimum wage laws, most people don’t pay much attention to economics, either.  I would bet that if people knew how harmful minimum wage laws are to teenagers, especially black teenagers, they would favor a reduced or eliminated minimum wage for those under 19 or 20.

Ignorance is no excuse, however, for the leaders and economic advisors of both the Democratic and Republican Parties, yet both parties have supported increasing the minimum wage level, time and time again. Why?

In my opinion, the Democrats push minimum wage laws because such laws are popular, and they’ve convinced their supporters, including the black community, that minimum wage laws are a way the government can help the poor. In fairness, a great many elected officials of both parties actually believe this.

It’s bad economics, but good politics. The Republicans usually go along because they’re afraid they will be cast as uncaring, or, even worse, as racists!

Somebody should be screaming to high Heaven about the racial effect of these moronic minimum wage laws, politics be damned, because it would be the right thing to do.  And it’s not just minimum wage laws that have harmed the blacks of America. The liberal policies of the last 50 years have done egregious harm, and the voices of protest have been far too feeble, especially from the Republicans.

Here’s what Thomas Sowell once wrote: “No segment of the population has lost more by the agendas of the liberal constituencies of the Democratic Party than the black population. — Yet the Republicans have never articulated that argument, and their opportunism in trying to get black votes by becoming imitation Democrats has failed miserably for decades on end.”

And it still fails.

Readers who wish to know more about disparate impact are referred to Thomas Sowell’s “Intellectuals and Race”, Basic Books, 2013, pp. 131 -136. For a recent article supporting disparate impact, Google: ProPublica Nikole Hannah-Jones Fair Housing.  A guest editorial opposing disparate impact appeared in the Wall Street Journal 2/25/13. Google: Roger Clegg: How Not to Fight Discrimination.

For a concise review of the effects wage laws have had on minorities, go to “Race & Economics”, Walter E. Williams, Hoover Institution Press, 2011, Ch. 3; Also, Sowell, ibid, pp. 95-96.

For a comprehensive look at defining racism, Sowell, ibid pp. 93-95

3/28/13

Fat Cats And Racists, Part Two

I was having a conversation with a union employee a few years ago, a middle aged man suffering from infallibility, who assured me that if you were an old Republican, you were a racist.

I thought to myself, “What a moron.”  I wondered if Lenin would call him a “useful idiot”, somebody who would believe anything you told them, as long as it reinforces their prejudices and made them feel good about themselves.

I also wondered, “Why in Hell do the Republicans allow this sort of BS to be perpetrated, year in and year out?” I suppose Republicans think such imbecilic charges don’t need to be countered, given such prominent Republicans such as Condi Rice, Colin Powell, Michael Steele, Allen West, etc.  They are wrong.

In general, Democrats are the party of big government, and big government means big money and big power.  More than one pundit has said that, without the black vote, the Democratic Party  wouldn’t win very many elections, and wouldn’t therefore be able to get its hands on all that power and money. Here’s what Thomas Sowell wrote about the 2010 Congressional elections in his 1/22/10 column,  “How Republicans Can Win the Black Vote”:

It may be years before Republicans can again get a majority of the black vote. But Republicans don’t need to get a majority of the black vote. If they get 20 percent of the black vote, the Democrats are in trouble — and if they get 30 percent, the Democrats have had it in the general elections. In some close congressional elections, if the Republicans increase their share of the black vote by even modest amounts, that will be the difference between victory and defeat.

Because the black vote can be THE crucial difference between victory and defeat, liberals and progressives, at the first sign of any challenge to Big Government, run the “racism” charge up the flagpole. You want welfare reform? Racist! Cuts to food stamps? Racist! Budget controls? Racist! Oppose gun control? Racist!

This silliness has been going on for years. My favorite example is Congressman Charles Rangel back in 1994 on a Republican plan to make some budget cuts, not actual spending cuts, just budget cuts:

Rangel denounced the plan as a form of modern-day racism. “It’s not ‘spic’ or ‘nigger’ anymore,” he raged. “[Instead,] they say, ‘Let’s cut taxes.’ ”

(Given Rangel’s recent problems, it‘s a wonder he‘s not in prison, let alone still in Congress.)

The most recent threat to big government has been the TEA Party.  Essentially, the TEA Party is a protest movement against the government’s abuse of power, especially unnecessary spending.  As such, the TEA Party is a threat to government programs, money, and jobs and must be stopped at all costs. Hence, the “racism” charges, proofs be damned, and to hell with black Tea Party supporters Herman Cain, Tim Scott, Allen West, Lloyd Marcus, et al.

Sure enough, all over America the weak-minded useful idiots and true believers accepted as gospel that the TEA Party was a bunch of racists.  In a refreshing moment of candor, Mary Frances Barry, former Chairwoman, US Commission on Civil Rights, had this to say, (note her casual assumption that Republicans are racists):

“Tainting the TEA Party movement with the charge of racism is proving to be an effective strategy for Democrats. There is no evidence that TEA Party adherents are any more racist than other Republicans —  . Having one’s opponent rebut charges of racism is far better than discussing joblessness.”

Here’s what then Representative Tim Scott, now Senator, from South Carolina said about the smear campaign:

“I’ve been to dozens of Tea Party rallies. I’ve given at least half a dozen or more speeches.  I have yet to find the first racist comment or the first person who approaches me from a racist perspective. —when you look at the basis of the Tea Party, it has nothing to do with race. It has to do with an economic recovery.—It has to do with limiting the role of government in our lives. —How do you fight that?  The only way you fight that is to create an emotional distraction called racism. It doesn’t have to be real. It can be rhetoric but it gets the media focusing on something other than the truth of why the Tea Party is resonating so well with the average person.”

When I was Chairman of our local TEA Party in 2011, we had a lending library at our front desk which included books by four black libertarian/conservative, TEA Party supporters: Thomas Sowell, Walter Williams, Larry Elder, and Star Parker. Sowell and Williams, both economists, are two of America’s foremost scholars, and the typical lib/progressive has never heard of either, let alone read anything by them.

Also, two members of our TEA Party Board of Directors made campaign donations to Herman Cain, and one member gave to Star Parker’s campaign.  I wonder how that compares with the Democrats, Republicans, or Progressives of Grant County?

In fairness to the people of Grant County, in the past two years I’ve made it a point to rub elbows with Democrats, Progressives, Greens, and even the ACLU. Only once did I encounter a hate-filled true-believer-moron. With that one exception, I’ve found all of these people to be friendly, receptive and (I’ll be damned!) likeable. Not one of them accused me or the TEA Party of racism.

Two more disclaimers: Not all Democrats want our national motto changed to “In Government We Trust”, and there are more than a few Republicans who worship Big Government. One that comes to mind is ex-President George H.W. Bush, who, when asked about his long and varied career in and out of government, began to gush about “public service” to such an extent I thought they were going to have to put a paper bag over his head, stop the hyperventilation.

I was embarrassed for him. Sounded just like Michelle Obama would a few years later.

Next week: Who Are The Real Racists?

3/20/13

I sometimes feel a little sorry for the Republicans. They are always being called the party of “the rich”, or the party of the “fat cats”.  This is puzzling, because there are so many very rich, very important Democrats in America.  I have an article dated Jan. 1, 2012, that listed the twenty wealthiest people in America at that time, and 12 of them were Democrats.

All of the top twenty had estates worth over $12 billion. At the top of the list were the well known billionaire Democrats Bill Gates, founder of Microsoft, and Warren Buffet, head of Berkshire Hathaway, who’s perhaps the world’s most famous investor (and most famous “fat cat” supporter of President Obama). These two had assets of $54 Billion and $45 billion, respectively.

In fairness to the top twenty, all but two were contributors to both parties, those two being the “Google Boys”, who contributed only to the Democrat Party. (Don‘t know who the “Google Boys“ are? Very few do, especially those who call Republicans “fat cats”.)

The top Republicans were the Koch brothers, in fifth and sixth place with assets of $21.5 billion each. Following them were three of WalMart-founder Sam Walton’s kids, all Republican.  A fourth Walton, daughter-in-law Christy, was in fourth place, and she’s identified as a Democrat, which is probably a mistake as her contributions favored Republicans.

Other very rich Democrats who came immediately to my mind, but were too “poor” to make the list, were Lloyd Blankfein, Jamie Dimon, Vikram Pandit, Robert Rubin, Sandford Weill, Jim Chanos, the late Steve Jobs and, probably a Democrat, Jeff Bezos.  Most of these people are associated with Wall Street, a field I worked in for many years.

Then, of course, we have all those Democrats making millions in show business.  At the top of the list would be someone I admire very much, the hugely influential Oprah Winfrey. Google up her income, and the numbers I’ve seen range between $175 million and $315 million, with an estate of almost $3 billion.

What does all this mean? Not much, in my opinion. I think it’s a wholesome thing that highly successful people are well represented in both parties. It is not a wholesome thing that Democrats still find it a political winner to portray being rich as somehow bad, and the Republicans as the party of the rich.

The thinking goes like this: If you spend your life amassing wealth it means you’re greedy. If you’re greedy, you must be selfish.  If you are selfish, you do not “care” about  other people, especially the down-and-out, the struggling, the — fill in the blanks, ad infinitum. Sure enough, exit polls in the 2012 election showed Romney losing big on the “care” issue.  (Interestingly, if you inherited your money, you’re off the hook.)

If the Republicans don’t turn this argument 180 degrees around, and I could tell them how to do it, then the Democrats will continue to use class warfare and politics of envy to win elections.  I find that very discouraging.  Both parties should be celebrating America as the land of opportunity, a meritocracy that shines a light of hope for the entire world.

Of course, how you get rich counts. In America, meritocracy has been the primary road to riches. In many parts of the world, that is not the case. In Cuba for example, Fidel is reputedly the richest person with a fortune of almost $1 billion. He didn’t get it by selling rum and Colas on the beach.

I remember some years ago Henry Ford’s grandson was showing the Chinese dictator, Deng Xiaoping, around one of Ford’s factories.  Deng had risen to the top following Mao’s demise in 1978, and he was no fool.  I will always remember what he said to Ford: “I guess before a nation can get rich, people have to get rich.”

That’s right. People. Not government.

3/15/13 The Utopian Ideal

Karl Marx once famously wrote that the culmination of Communism would be a society which could “inscribe on its banners: From each according to his ability, to each according to his needs!”

Wikipedia tells us that Marx didn’t originate the phrase, but regardless, it has become a popular summary of the ultimate socialist or communist ideal.  To most people, it sounds like a good idea, but most people don’t have the time or inclination to think about it.

If they did, they would recognize it for the nonsense that it is. The only thing this phrase gets right is it places the “from” before the “to”, i.e. production must precede consumption. Other than that, it is a prescription for total dictatorship.

Take the word “needs”:   “ — to each according to his needs.”  A second’s reflection and all of us would agree that “needs” is a highly subjective term. How do we draw the line between wants and needs?

It’s been a cold spring, and you say you  “need” a week in Hawaii. Your wife loves cats so she “needs” to buy cat food.  (Don’t you think all the money society spends on pet food could be put to better use?) You “need” an iPad?  A 3-D color TV? A four-wheel drive? Roquefort dressing? etc. etc. ad infinitum.

It’s obvious we can’t leave the definition of an individual’s needs up to the individual.  We will require a group of intellectually and morally superior people to come to disinterested judgments on what each of us “needs”.  I know some people right here in Silver City who would be good at this job.

One is a very nice lady with whom I was talking one day about locally grown food and “sustainability” here in Silver City. I said that if I were to put up some greenhouses and grow bananas at $5 a pound, we wouldn’t have to rely on $.50 per pound imported bananas that come all the way from Guatemala. Well, she said, people don’t really NEED bananas.

On another occasion, I was at a “Local Food Forum” meeting and mentioned that WalMart and Albertson’s have a fantastic array of foods from all over the world, one of my favorites being stuffed olives, difficult to grow locally.  To which one of the attendees replied, jaw firmly set, that people will have to learn to live without some things. (This was another lady. Does a lot of church work.)

At the other end of Marx’s dictum, we have the word “ability”:  “From each, according to his ability — ”. While this may seem to be a more objective characteristic, i.e. either a person has or does not have ability, it too, is a very subjective concept.  Certain selfish people, for instance, may not want to exercise the full extent of their abilities if they resent the value of their efforts going to someone else, someone with greater “needs”.

How can society motivate such despicable people? Put their names in the paper? Long, arduous prison terms?  How about firing squads?

Then there are unfortunate people, like myself, who just don’t have any abilities. I can’t carry a tune, swing a golf club, or do any other thing of possible value. However, if I lived in Cuba, that brilliant judge of talent, Che Guevara, would have immediately seen that I had the ability to harvest sugar cane. What a guy.

Finally, if we look at the whole phrase, is this “from” and “to” going to be a voluntary process? Will those with abilities gather every Saturday in the town square to give to those with needs, or will there have to be some external motivating factor? How about a police state?

In fairness to Marx, this society he envisioned would come after the proletariat had thrown off its chains and where “labor has become not only a means of life but life’s prime want”.  People would work for the good of society, not out of compulsion, but because, according to Wikipedia,  “ — work would have become such a pleasurable and creative activity”.

One wonders, in such a society, who would collect the garbage.

March 10, 2013

Every year when I do our income taxes, I shake my head at the very first box I’m asked to check. How, I ask myself, can the government get away with such nonsense?   The box is for funding presidential elections, $3 from you or your spouse goes to the fund when you check the box.

Here is the part that knots my knickers: “Checking a box below will not change your tax or refund.” Really? Wow! A chance to reduce the influence of special interest money in our presidential campaigns, and for free!

Not quite. While technically true, your tax return won’t be effected this year, every box checked creates a $3 liability out of thin air for the federal government next year. Who do you think pays for it, the Tooth Fairy? Taxes and/or borrowing will go up next year to pay for that $3 liability you create.

As my favorite economist would say, there is no such thing as a free lunch, even if politicians would like us to think otherwise.

Essentially, this is a dishonest request by the government.  The honest and transparent thing to do would be to put the box at the very end of the return with the caption, “If you check a box below, add $3 to your taxes owed or reduce your refund by $3.”

While we’re at it, why stop at $3, why not $2,600, the current legal limit for a contribution to a single candidate?  I would also like to see some other government programs put at the end of the 1040 for an up-or-down, tax-dollar vote.

For example, two programs that subsidize the best educated, wealthiest citizens in our country are The National Endowment For the Arts and The Public Broadcasting Corporation. I don’t care what the arguments for these programs are, the Federal Government has no business taking my money to support these unessential and elitist programs. Another controversial program partially funded by the Federal Government is Planned Parenthood.

I’m sure readers can come up with other programs to add to those three, which combined, cost federal taxpayers only about $1 billion in 2012.  Not a lot of money, but very symbolic.

Here’s how it might look at the end of the 1040: “The National Endowment For The Arts (NEA) requests $XX.XX from each taxpayer for its 2014 budget.  Check the box and add that amount to your taxes owed or reduce that amount from your refund. OR check the box “other amount” and fill in the amount you would like to add to your taxes or reduce your refund.  Check the Zero box for no contribution.”

Do the same for the Public Broadcasting Corporation, Planned Parenthood, etc. The programs would have to spend only the amount of tax revenue granted by the people who “checked the box.”

The beauty of this is that it would end what I consider taxation without representation. My taxes pay for the NEA, but they don’t ask me how the money should be spent.  If it isn’t my money, I don’t give a damn. As it is, I give a big damn when they fund a work of “art” called “piss Christ”, a photo of a glass of urine with a crucifix in it.

I’m sure people who object to Planned Parenthood give a big damn about what their money is used for, too.

One other thing:  This would turn the funding of these programs into a public referendum.  We’d find out how much support the public REALLY has for these programs, so popular with special interests.  Which is why it will never happen.

March 8, 2013

This time of year, I always recall watching a news show a couple decades ago of Henry Bloch giving testimony before some Congressional panel. Henry and Richard Bloch were the founders of H&R Block, the tax preparation company.  (They spelled the company’s name “Block” to make it easier to say and remember.)

Back then, as now, most people viewed filling out their forms with dread and were happy to pay the Bloch brothers twenty bucks or so to do it for them.  In the Congressional hearing, I remember a congressman telling Henry Bloch that they, Congress, were going to simplify the tax code and, “Our goal is to put you out of business, Mr. Bloch!” Yes, siree, by God, Congress was going to ride to the rescue of the harassed taxpayer!

Stupid me. I believed him.

At the time I worked for an insurance company, and I told my boss that we shouldn’t invest in H&R Block because Congress was coming to its senses and was going to simplify the tax code.

Well, the last I looked the tax code was over 70,000 pages and growing, and the Bloch brothers have made millions.  My company didn’t buy any of their stock and I didn’t either, which is one of the reasons I’m here and not in Hawaii.

It looks like Congress can’t, or won’t, simplify our taxes, and the reason is twofold. One, “taxes” are a very big business. Lots of people work on tax preparation, tax legislation, tax collecting and tax avoidance, both in and out of government. Two, behind every line of our tax code is a special interest and/or somebody’s idea of an important social purpose to be served through the tax code.

In the meantime, it’s gotten much easier to file our taxes thanks to personal computers and tax preparation software.  It takes me no more than a couple hours to load the software, fill in the blanks, print a copy and hit a key to electronically file and pay. Years ago, it took at least a day to make the entries, do the math, make copies, stable and mail, etc. etc. What a pain.

However, while the personal computer has made doing taxes pretty easy these days, it has also mades it easy for the politicians and tax bureaucrats to add complexities and little hidden tax favors and get away with it.  Maybe, without the computer, our Byzantine tax code would have self destructed by now.

Wouldn’t it be nice to have a law requiring every one of our elected Washington, D.C. solons to do their own income tax returns, no computers allowed? I’m betting taxes would get simplified, and damn quick.

Meanwhile, as a nation we will continue to spend billions of dollars on unproductive, wasteful tax activities.  We will continue to have a tax code full of  the “soft” corruption of special tax breaks for special interest groups, and we will continue to make investment and spending decisions influenced by the tax code, not necessarily the best way to invest or spend.

March 5, 2013

Minimum wage: Bad Economics by Peter Burrows

Since the beginning of recorded history, governments have tried to fix prices.  Hammurabi, the King of Babylon  four thousand years ago, is best known for the Code of Hammurabi, a detailed set of laws that included ridged controls over prices and wages. For instance, a field laborer was to be paid eight gur of corn per year, while a herdsman was to receive six gur. (The best definition of a “gur” I could find was that it equaled about eight and a half bushels.)

The history is sketchy, but historians say Hammurabi’s kingdom was in a period of long term decline when these laws were issued. Cause and effect? Who knows, but probably.

Since governments are really good at creating inflation, most of the price controls in history have attempted to stop prices from rising.  The Roman ruler Diocletian issued his famous Edict 2300 years ago that set the prices on over a thousand items. He was trying to stop the inflation that had set in after years of government overspending and debasement of the coinage used to help pay for the spending. He blamed the inflation on the “avarice” of merchants and speculators. Sound familiar? Lots of bloodshed followed.

Today we know that general inflation is always a monetary problem caused by too much money created by the government, so we would never resort to imposing wage and price controls and blaming greedy merchants and speculators, right?  Wrong. Richard Nixon imposed wage and price controls on Sunday, August 16, 1971.

The stock market, composed of sophisticated investors schooled in the folly of wage and price controls, greeted this news with a big raspberry on Monday, the following day, right? Wrong. The Dow Jones Industrials went UP almost 4%, a big one-day move.

If thousands of years of disastrous results with government price fixing can’t drive home the lesson, than it must be that human nature is hardwired to distrust free markets. That, plus  the tendency of people in positions of power to believe in their own superior judgment, means we will always have laws that mandate at least some prices and wages, the consequences be damned.

Minimum wage laws are today’s most obvious example of this ancient folly. At the heart of the matter is a failure to appreciate that the laws of economics are as fundamental as those of physics.

For example, most people support minimum wage laws, yet if you ask them if they think people should be paid more than they earn, they’ll look at you like you’re crazy, but that’s what they want employers to do. In the real world, workers who can’t earn the mandated wage are fired or never hired in the first place.

How not having a job reduces poverty is a mystery to me, but raising the minimum wage is always justified as a means to alleviate poverty.  It may be true that a fulltime worker can’t support a family on the minimum wage, but so what? Poverty can’t be ended by waving a wand or passing a law.

Furthermore, employers are under no moral obligation to pay their employees a living wage, a get-rich wage or a minimum wage. They must pay a competitive market wage to attract the workers they need, but no more.

In my opinion, people who think workers are not being paid enough have the moral obligation to start their own businesses and pay whatever they think is “enough”. Passing a law that forces someone else to pay higher wages only results in fewer workers with jobs, for which minimum wage pushers should take full responsibility, but don‘t. As I have noted previously, it’s easy to be generous with somebody else’s payroll.

If we want to eliminate poverty, and we all do, raising the minimum wage won’t do it. Anybody who thinks otherwise doesn’t know the first thing about economics, which is: You cannot consume what isn’t first produced.  Even hunter-gatherers starve if Mother Nature stops producing nuts and berries.

Imagine everybody is paid in one-dollar bills.  At the end of the week, would people take home their pile of one-dollar bills and eat them, weave them into clothes, or stuff them into their car’s gas tank?  Of course not.  They exchange these dollar bills for goods and services, the more dollar bills, the more goods and services can be consumed.

In essence, people work for goods and services for which they must produce goods and services. The dollar bills are only a medium of exchange.

Raising the minimum wage attempts to circumvent this economic law by adding to the pile of dollars without any corresponding increase in the pile of goods and services produced, a shortcut to prosperity that is just not possible.  Put another way, the minimum wage puts the cart before the horse: It mandates consumption before production.

It is a sad commentary that such bad economics has been going on for so long, with such disastrous results, and so few object.  Much of the problem is that it’s an emotional issue. People feel good about raising the minimum wage because they think they’re doing good.

Dwight Lee, a professor at Southern Methodist, wrote in the Wall Street Journal last Feb. 21 that Maxine Waters (D-CA)  had this to say about the Fair Minimum Wage Act of 2007, which raised the minimum to $7.25 from $5.15:  “When we pass this bill, we will all feel better about ourselves.”

Oh, my.
“Half the harm that is done in this world is due to people who want to feel important. They don’t mean to do harm; but the harm does not interest them. Or they do not see it, or they justify it because they are absorbed in the endless struggle to think well of themselves.”
― T.S. Eliot

2/27/2013  Last week’s article concerned what is perhaps the most devastating unforeseen consequence of minimum wage laws, their effect on teenage unemployment, especially black teenagers.  This week we look as some of the false assumptions people make when they support minimum wage laws.

A few years ago, Governor Richardson said about raising New Mexico’s minimum wage, “It’s just good economics.”  Unfortunately, most people agree with him. Of course, most people who support minimum wage laws do not actually employ anybody themselves.  It’s easy to be generous with somebody else’s payroll.

While economics is not a strong suit for most of us, I think the average person, if they think about minimum wage laws, will conclude that such laws are NOT good economics.  Let’s look at the assumptions behind minimum wage laws, most of which people don’t know they are making, and all of which are wrong.

Assumption number one: Poverty can be fixed by passing a law. If this were true, Haiti could become prosperous by passing a high enough minimum wage, and Mexico could eliminate our illegal immigrant problem if they would just pass a high enough minimum wage, and all their workers would stay home.. A moment’s reflection, and most people see this as the silly idea it is.

I call it Camelot thinking. As Lerner and Loewe wrote in their wonderful musical, Camelot, it was against the law for rain to fall before sundown, or for the snow to surpass its “legal limit”, etc. How wonderful. Not surprisingly, it was said to be JFK’s favorite musical.

Assumption number two: Employers cause poverty.  The reasoning here is that people are poor because they aren’t paid enough.  Since the employer pays the wages, it is therefore the employer’s fault people are poor. Ergo, pass a law that requires employers to pay more, and if they don’t, put the bastards in jail. There is embedded in this assumption another, very subtle assumption:

Assumption number three: Employers pay wages.  This may be a little hard to grasp, but all the bills a business incurs, e.g. materials, heat and light, taxes, wages, etc., are paid for by the customers.  Start a business, hire a few people, and you‘ll get the point. Most people realize this assumption is false when confronted with the idea that, if the minimum wage is such a good idea, why not raise it to $20 an hour, or $100 an hour? The minimum wage advocate quickly says, “Well, the employers can’t afford that.”  AND WHY IS THAT?

Assumption number four: Low-wage employees need the government’s protection.  The thinking is that low-wage  earners lack the power to do anything about being exploited by their employers. They are VICTIMS in need of the government’s protection. Let me quote what the economist Walter Williams had to say about “exploited” foreign workers, comments just as applicable to domestic workers:

“Some U.S. companies have been accused of exploiting Third World workers with poor working conditions and low wages. Say that a U.S. company pays a Cambodian factory worker $3 a day. Do you think that worker had a higher-paying alternative, but stupidly chose a lower-paying job instead? I’m betting the $3-a-day job was superior to his next best alternative.  Does offering a worker a wage higher than what he could earn elsewhere make him worse off or bettor off? If you answered better off, is the term exploitation an appropriate characterization for an act that makes another better off? If pressure at home forces a U.S. company to cease its Cambodian operations, would that worker be worse off or better off.”   (From his column, Nonsense Ideas,  February 21, 2007)

And, if a minimum wage increase forces a company to lay off workers, are those workers better off or worse off?  Is the government really protecting a worker who would willingly and happily take a job below the minimum wage? (If anybody has a $5 per hour night watchman job, give me a call. I won’t tell a soul.)

Next week: How minimum wage laws violate basic economics.