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Democrats Economy Government Republicans Schumer Truth

Democrats’ Shutdown A Desperate Diversion from Economic Success

by Rep. Julio Gonzalez, M.D., J.D.

Whenever the federal government shutdown ends, there is one inescapable conclusion concerning it’s cause: Democrats’ thirst for a diversion from the series of recent Republican victories in the public forum, specifically in the economy.

As explained below, there is no imminent threat to DACA immigrants’ legal status, and no urgency to the CHIP children’s health care program as Republicans had proposed funding for six years. There was, therefore no need for Democrats to force a government shutdown.

Except for politics. That leaves us with one undeniable truth as to the motivation for Democrats to aspire to shut down the government: Disrupt the good things happening to Americans under Republicans and, worse, President Trump.

The leftist Democrats cannot stand that the Republicans’ adherence to classical macroeconomic principles in governance has lead to a robust economic growth spurt of over 3% GPD growth in the last three quarters. They cannot tolerate that the tax package Former Speaker of the House Nancy Pelosi called “the worst bill in the history of Congress” has led to companies voluntarily raising level entry wages for its employees and the provision of bonuses based on the moneys they are saving from the massive decrease in the corporate tax rates brought to them thanks to the Republicans. They cannot stand that the unemployment rate has reached a 43-year low and that African Americans are seeing the lowest unemployment rate since 1972.

Congressional Democrats know their message is collapsing under the weight of the nation’s economic reality. They can ill afford to allow the American people to continue to speak about these successes and how favorably they are being impacted by the predictable results of conservative fiscal policy. And most importantly, they cannot allow President Trump to bask in the glory of his newfound momentum at the one-year anniversary of his inauguration.

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So what do congressional Democrats do?

They shut down the government hoping the conversation will shift to the Republicans’ inability to govern and the recklessness of a party shutting down the government despite having control of all three branches of government. (It’s possible the shutdown could even have a positive, if unintended, affect by revealing how little Americans’ notice these portions of government disappearing.)

Except there is no crisis, no disagreement, for the minority party to base such a fickle and evil act as shutting down our government, and the Republicans could not possibly pass a budget bill through the Senate without the cooperation of the Democrats because 60 votes are needed to pass funding measures.

In a move heralding their selfishness and disruptive stance on issues affecting all Americans, congressional Democrats opted to obstruct the passage of a budget, even a temporary one, ostensibly to demand some guarantee for DACA recipients and to advocate improvements for America’s CHIP program.

To be clear, DACA recipients are not immediately threatened in any way.  Their present status is guaranteed by a Presidential Order expiring, not next week, but in March. Additionally, their position is doubly protected, at least for now, by a legally unsubstantiated ruling delivered by an activist judge from San Francisco, such that, even if March were to roll around without a solution regarding the legal status of children of illegal immigrants, their position would still be protected by the injunctive relief obtained for them by plaintiffs like the state of California.

So, where is the imminent threat to DACA recipients demanding that government services be shut down for immigrants legally residing in the United States and, worse yet, for American citizens?

There is none.

As to the CHIP program, the Republican proposal includes a provision that would continue funding the program delivering care to millions of children for the next six years, yet the Democrats would have you believe that but for their aggressive stance on disrupting the federal government’s function, the program would be severely threatened. Of course, this is a messaging lie being delivered by congressional Democrats to help support their untenable position

So where is the need to shut down the government in support our pediatric health care recipients?

Just like with DACA, there is none.

Despite the ill-founded wishes of congressional Democrats, the responsibility for this callus and grossly irresponsible act will fall squarely on them, and the longer they let this situation fester, the greater the level of Democratic dysfunction will appear to be.

Dr. Julio Gonzalez is an orthopaedic surgeon and lawyer living in Venice, Florida. He is the author of The Federalist Pages and serves in the Florida House of Representatives. He can be reached through www.thefederalistpages.com to arrange a lecture or book signing.

Categories
Economy Media Politics

Low Trump Approvals Directly Attributable To Media Coverage

Rod Thomson

Relentlessly negative media coverage continues to keep President Trump’s approval ratings at historic lows. This should not be surprising. But now it is virtually provable by connecting the dots on three pieces of data.

First off, it’s necessary to understand that any polls conducted on an issue recently in the news are a complete and direct reflection of the media coverage. So, for instance, when the tax reform proposal was announced, it was covered in normally negative fashion, focusing on the “losers” and on the impact the deficit. Within days, polls of Americans were taken on their view of the tax reform proposal, and with complete predictability result that most were negative about it and concerned about the losers and the deficit. That then was reported as the tax reform being deeply unpopular. Well, duh.

However, on issues that have been around a long time, Americans tend to be able to form their opinions less reflective of media coverage. This is particularly true of issues related to principles.

So it follows that the media coverage of Trump is what is driving his low approvals because it comes as one negative news cycle after another, which builds this unrelentingly negative picture of the Administration. Trump helps the media efforts at times, but the rapidly improving economy after eight years of malaise has made Americans positively giddy over the nation’s economic outlook, and yet they largely disapprove of Trump.

And herein lies the evidence.

A recent Quinnipiac University poll revealed record-high levels of economic optimism among Americans. (That was not the press release lead or the media focus, naturally, but probably the most important component.) Two-thirds of American voters described the state of the nation’s economy as “excellent” or “good” — up from the previous high of 63 percent of voters who said the economy was “excellent” or “good” on Dec. 19. Further, 73 percent of voters told Quinnipiac that they regarded their own financial situations as “excellent” or “good.” That’s almost three out of four on a personal level, which is fantastic.

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But the booming economy, with the lowest unemployment rate this century and GDP growth now expected to surpass 4 percent — something not seen since the Bush term — is only perfunctorily covered by the media, and rarely followed up on. Success in getting movement among China’s leaders regarding North Korea and the unification of several Muslim countries in a very loose “common enemy” federation with Israel against Iran and proxies is all but ignored. These would be constant news items for Obama — who, again not surprisingly, had much higher approvals.

When the media reports the positive economic numbers, they find an expert to explain that this is largely leftover from Obama — as though after eight years of a crummy economy, a year after Obama is out of office suddenly his economy is doing great. Is this Trump’s doing? Largely. Remember, businesses make investments and plan forward based on expectations. Under Trump, they are expecting and getting deregulation, tax reform and a better atmosphere for employers and employees to thrive. But the media does not report that concept, ever. Yes, this is basic liberal media bias, but also a strong dose of undiluted Trump hatred.

Almost universally in modern America outside of war time, a strong economy translates into a popular president. That is true of Republican and Democrat presidents. And vice-versa is true.

However, what happens if Americans feel the economic boom, but only and ever hear negative press on a president: Russia, global warming, Twitter, saying a bad word in a meeting or some other nonsense?

First to find an objective measurement of negativity. Thanks to the Pew Research Center, we have one.

Pew found that the initial media coverage of Trump was more than three times more critical than the initial coverage of former President Barack Obama — who, granted, the media fawned over like a little kitten — but also more than twice as negative as Presidents George W. Bush and Bill Clinton. That’s a lot of negative input into the American opinion psyche.

So here is the formula: Record negative media coverage defeats record high economic optimism to create record low approvals. Alas, the reality is that the mainstream media is still the dominant force in shaping public opinion.

Rod Thomson is an author, TV talking head and former journalist, and is Founder of The Revolutionary Act.


Today’s news moves at a faster pace than ever, and a lot of sources are not trustworthy. Whatfinger.com  is my go-to source for keeping up with all the latest events in real time from good sources.


 

Categories
Constitution Economy Federal Debt Truth

Dear Democrats, Media, Everyone: The Problem is SPENDING

Rod Thomson

Yes, reducing the corporate tax rate on U.S. companies is essential for keeping them competitive with most of the countries who have lowered their own rates considerably below ours. That’s good for businesses, jobs and the economy. Well done.

However, the rest of the tax reform package is largely a sop to class envy and ongoing social engineering, using the tax code to encourage or discourage behavior. Those are not conservative principles and should never have been part of tax policy. And they are not a blueprint for making America great again.

Why should the federal government require some Americans to subsidize other Americans, whether it is home ownership or college tuition? (If you don’t own a home, you are subsidizing those who get mortgage and property tax deductions in funding the federal government because they are paying less than you due to the deduction. Ditto on college tuition and the rest, including no-income tax states subsidizing high-income tax states.)

While this is on Republicans right now to fix, it is pretty farcical to see again just how little Democrats even bring to the debate — almost any debate. With virtually every tax plan of any kind at any stage, Democrats have one response: “It’s a tax cut for the rich.” And so, even when this one is demonstrably not that, it’s still the mantra because they simply have an empty tank philosophically.

Democratic Sen. Chuck Schumer said: “It’s little more than an across-the-board tax cut for America’s millionaires and billionaires.” Democratic Sen. Claire McCaskill told NBC: “This is a tax cut for wealthy people…” Oh wait…That was on the bill to repeal Obamacare. Sorry, they just offer so little they use the same lines for multiple issues.

So it’s up to Republicans to be the responsible adults, and they’re not really making the grade when they fail even to see that Congress should not dictate winners and losers through the tax code.

However, not surprisingly the entire tax package debate misses the central, endemic problem facing federal government finances: It’s not mostly about taxes, it’s mostly spending. And the problem with spending is that Congress and presidents are addicted to it for their own personal gain —political gain, popularity gain and financial gain.

In reality, most Americans are actually damaged right now by the taxers-and-spenders in D.C. And eventually all Americans will be hurt by them when it all collapses. And yet they go merrily on, destroying the prospects for a brighter future for our children so they can get what they want now. They are aided in this charade by a media that — like Democrats — can only report tax and spending issues one way: who loses and who wins. They pretty much mimic Democrats’ vacuous take.

NPR does “thoughtful” reporting by referring to the Tax Policy Center, which found that “nearly three-quarters of the savings from the tax overhaul would go to the top 20 percent of earners — those making more than $149,000.” Well duh, those are the people paying most of the taxes. Pretty sure both the Tax Policy Center and NPR know that. Also pretty sure they never give that context.

There are two sides of the ledger. Let’s go through the numbers on both sides and see if it is a problem of low taxes or high spending.

 

The unpopular truth: the rich are paying more than their fair share

This is not popular to say — which is why politicians from both parties avoid saying it — but it is factually undeniable: Wealthy Americans are actually carrying the rest of us when it comes to income taxes. They pay so much more than they get from the federal government, it’s almost embarrassing. In a rational conversation not laden with emotions and envy, we would actually be thanking them.

The New York Observer sums up the numbers, a.k.a. facts, this way:

“The latest federal income tax data reported by the IRS shows that the top 1 percent of income earners pay 39.5 percent of all federal income taxes, nearly twice the 20.6 percent share of national income they earn. The entire bottom 50 percent of all taxpayers pay 2.7 percent of federal income taxes, which is only a small fraction (about one fourth) of their share of national income.

“The top 1 percent, indeed, pay a much bigger share of federal income taxes than the entire bottom 90 percent of income earners, who pay only 29.1 percent of federal income taxes, while earning 53 percent of national income. That means as well that the top 1 percent pay a bigger share of income taxes than the entire middle class combined, defined as the middle 20 percent of income earners.”

That’s why the Democrats’ charges of tax cuts for the rich, and the media coverage is just so lame. One unfortunately expects politicians to be dishonest. It’s just a shame the media is also by not reporting the context of “tax cuts for the rich.”

This chart from the American Enterprise Institute puts it visually, explaining the net amount of taxes each 20 percent (quintile) of tax-paying households pay after taking out what they receive from the federal government in direct benefits. The bottom 60 percent of American taxpayers receive more than they pay in taxes, meaning only the top 40 percent even pay net taxes. And most of that top 40% is paid by those at the high end.

Suffice to say that the squawking from the left on tax cuts for the rich is because it is only the rich who are net income taxpayers to the federal government. You can’t give tax breaks to people who are not paying taxes.

But resentment and envy are emotions not easily remedied by facts, and so this trudges on.

 

The problem is spending other people’s money

An intrinsic risk at every level of government is that politicians spend taxpayer money to essentially buy voter support. This risk is magnified as government grows and expands both its authority and its responsibilities. When that magnification happens with the government overseeing by far the largest economy on the planet, we have a problem. And when that is happening in a dynamic of diminished personal moralities, greatly diminished Christian influence and epically bad leadership — we’re headed for disaster.

This concept was well understood by a wise, older Tennessee farmer with “incorruptible integrity” who upbraided then-Congressman Davy Crockett for voting to give public money to help victims of a natural catastrophe. The farmer made the point that regardless of the merits of helping the people — which he believed Congressmen should do personally — it was wrong for Congress to do. There was no (and still is no) Constitutional authority for charitable giving by the federal government. Crockett was so convinced by the farmer that he regretted his vote and promised never to do it again. Here is the invaluable original story from 1867.

Unfortunately it is a totally foreign concept to modern American ears.

A Heritage Foundation study of the federal government’s unsustainable spending programs plots out this phenomenon over the past 50 years: “The continuous level of deficit spending has increased public debt, which…rose from 33.7 percent to 73.6 percent of the gross domestic product (GDP).” Measuring as part of the Gross Domestic Product is a way of making it apples to apples over time in terms of affordability.

If we took every penny earned and generated in the United States’ $19 trillion economy, which is one-fourth of the entire world economy, we could not pay off our nearly $21 trillion debt — half of which was run up during Obama’s two terms.

Pew Research broke down the broad federal government spending nicely:

“In fiscal year 2016, which ended this past Sept. 30, the federal government spent just under $4 trillion, and about $2.7 trillion – more than two-thirds of the total – went for various kinds of social insurance (Social Security, Medicaid and Medicare, unemployment compensation, veterans benefits and the like). Another $604 billion, or 15.3% of total spending, went for national defense; net interest payments on government debt was about $240 billion, or 6.1%. Education aid and related social services were about $114 billion, or less than 3% of all federal spending. Everything else – crop subsidies, space travel, highway repairs, national parks, foreign aid and much, much more – accounted for the remaining 6%.”

Most of our spending is entitlements, and that is the category growing the fastest. Not a good recipe.

So we see that while tax revenue continues to increase to the federal government, spending increases even faster and most of that spending is on some form of transfer payment from some Americans to other Americans. Remember up higher we pointed out that the bottom 60 percent of income-earners pay no net income taxes after factoring in direct benefits from the federal government (and, of course, those who do not work at all obviously do not pay any taxes) and we see the problem at the ballot box. Recipients of the government’s forcibly taking money from some to give to others are able to vote for the small-minded politicians who will continue taking and distributing that money in exchange for votes.

Alexander Fraser Tytler, was a Scottish judge, writer, historian and Professor of Universal History, and Greek and Roman Antiquities at the University of Edinburgh during the early years of the infant American Republic. He reputedly said:

“A democracy cannot exist as a permanent form of government. It can only exist until the people discover they can vote themselves largess out of the public treasury. From that moment on, the majority always votes for the candidate promising the most benefits from the public treasury, with the result that democracy always collapses over a loose fiscal policy — to be followed by a dictatorship.”  

It is possible we have reached such a point. If we cannot find and elect honest, principled people who will put the good of the republic and its future above their immediate self interests, then it seems a likely path to our eventual downfall or minimization will be financial collapse.

The roots of that will not be hard to trace.

Rod Thomson is an author, TV talking head and former journalist, and is Founder of The Revolutionary Act.

Categories
Economics Economy Minimum wage Politics Truth

IN-DEPTH: Flamingly Bad Big Government Drives Low Wages

Rod Thomson

During the past seven years, we’ve endured the worst U.S. economic recovery in the known history of recoveries. This is a plain and indisputable fact by the measurements of all economic recoveries. The worst ever.

Did this have something to do with President Barack Obama’s policies? Of course it did. It was no coincidence that the wild expansion of government in both spending and regulation put a damper on business growth and therefore economic growth. That’s a direct causal effect.

This spending and regulatory binge also played a role in income stagnation and, yes, in one of today’s favorite bogeymen: income inequality. The case for this is fairly straightforward to show, but you will be hard-pressed to find it in the mainstream media.

First, let’s be crystal clear that the American economy really has been sick since 2009. From 2010-2016 we had the objectively worst economic expansion in history, which is strange because typically, a deep recession such as the one we had starting in 2008 is followed by an equally powerful expansion. There’s a strong relationship between depth of decline and height of recovery.

Until this time.

President Obama was the first president without a single year of 3 percent real GDP growth while in office. Ever. GDP (Gross Domestic Product) is the only real measurement of the overall growth of the economy. But wait, there’s more. Annual economic growth during 2010-2016 was a full point less than overall growth from 1965-2010. So even including all of the recessions in those decades — including Jimmy Carter’s malaise, the dotcom bust and all the rest — that 45-year period still beat the Obama recovery years. By a long shot.

During the same 2010-2016 period, growth in real personal income and wages also dragged well below the historic average. Income inequality increased during this time. But both of these have been a long-term trend that just ratcheted up during the Obama years.

Weak economies overall drive income inequality because it’s people at the lower ends that are hurt the most. But there are multiple other reasons.

 

Why was the recovery so bad?

Let’s step back for a second.

There are three factors driving an economy: labor force growth, capital growth and productivity. All three happen during a strong economy. The labor market expanded rapidly during this crummy recovery, so that was not a problem factor. But capital formation — money to invest in startups, expansions, machinery, innovation — grew at half the historical rate and productivity grew at only about one-third of the normal rate.

Capital. Without access to money for investment, there was less innovation, less growth and expansion and fewer new businesses. So existing businesses were somewhat stagnant, and they faced less competition that would have bred innovation to compete. Without that, new markets and industries were not explored and the economy hobbled through a recovery that barely stayed out of recession at several points.

Capital was dramatically restricted through aggressive government laws designed to avoid the kind of subprime real estate bubble and bust in 2007 that led to a near-financial collapse and the recession. The primary law was Dodd-Frank, which mandated higher capital levels for all banks — including community banks, which were not a driver of the subprime crisis.

Further, the law added so many layers of regulations to an already heavily-regulated industry that compliance costs for banks have doubled since Dodd-Frank went into effect. Compliance costs alone are now figured at $70 billion annually — or nearly one-quarter of a bank’s total expenses — according to Federal Financial Analytics.

Banks need a level of regulation. But too much regulation stifles their ability to lend.

And without going into too much detail, the Federal Reserve Board’s money supply policies included loaning money to banks at such a low rate (essentially, 0 percent interest) that banks could invest in guaranteed financial instruments, such as U.S. Treasuries, and make guaranteed money with zero risk. Profits at zero risk are hard to pass up and that policy by the Fed kept billions of dollars out of the hands of business.

The truth is that businesses being able to access money from banks and investors is critical to a strong economy.

Productivity. Productivity can be measured a few different ways. The Bureau of Labor Statistics, however, puts it as: “Productivity is measured by comparing the amount of goods and services produced with the inputs which were used in production. Labor productivity is the ratio of the output of goods and services to the labor hours devoted to the production of that output.”

During strong economic growth, productivity increases. However, with fewer businesses and the associated lack of innovation and expansion, there were fewer options to be promoted, all of which kept productivity lower. More people wanted jobs, but the jobs they were getting were the same type and level as before, which meant their productivity was about the same.

This, of course, also leads to income stagnation specifically for the lower and working middle class.

 

More economy-wrecking government

Dodd-Frank deeply restricted businesses’ ability to get investment capital. But it was not alone in throwing anchors around the neck of economic growth.

A second major anchor was the Affordable Care Act, a.k.a. Obamacare, which turned out to be neither affordable nor about care. Obamacare added an enormous mandate on businesses to provide an increasingly expensive benefit, and it did so with mountains of paperwork detailing what all must be provided. Even small businesses with 50 employees frequently had to add a full-time position just to understand and comply with this law.

Obamacare’s onerous costs came at precisely the same time that Dodd-Frank and the Fed were making businesses’ access to capital almost impossible — a conflagration of government intrusions.

As the government adds more requirements on employers to offer benefits and comply with regulations, employers have less money left for actual wages. Obamacare was a double-whammy in that it required the extra costs but then also screwed up an already malfunctioning marketplace and prices soared even faster.

And of course the Obama administration was renowned for adding an enormous number of executive branch regulations through the EPA and other administrations. With this understanding, it’s a tribute to the capitalistic drive of Americans that the nation could mount any sort of economic growth at all.

 

Illegal immigration is a real growth roadblock

This is not hard to understand, just hard for multiculturalists to understand.

Millions of uneducated, unskilled people from Mexico, Honduras, Guatemala, El Salvador, etc. who do not speak English not only take low-end jobs from Americans, but they also depress the wages at the bottom because ridiculously low hourly rates by American standards are still better than anything they can make in their dysfunctional third-world home countries. Obviously, that’s why they came here.

In the past 30 years, the United States has absorbed 40 million foreign-born adults and another 20 million adult children of immigrants — legal and illegal — giving the U.S. an endless stream of low-wage labor. With that massive pool at the bottom, there will be no increase of wages for the foreseeable future. Economics.

Professor George J. Borjas, a highly respected economist at Harvard’s Kennedy School of Government and maybe the world’s foremost expert on the economics of immigration, has found that: “If immigration increases the size of a group by 10 percent, the earnings of native workers in that group fall by 3-4 percent.”

Interestingly, this conceptually works at the top just as it does at the bottom.

So consider this and laugh bitterly if you like: if you really want to close income inequality gap, our immigration policy should be the precise opposite of what it is. We should greatly increase the legal immigration of doctors, lawyers, engineers, MBAs, mathematicians and all but stop immigration at the bottom end. That would drive up incomes at the lower levels for lack of competition — including for newly arrived workers — but it would create wage stagnation at the top end by bringing in competition, and the income gap would close.

Of course, it will never happen. Consider who makes up Congress. Mostly lawyers and some doctors and MBAs who all have children pursuing similar high-end careers. And we have those vested in large-scale immigration in many industries and the Democratic Party. Not going to change.

 

Minimum wage laws just make it all worse

The solution to the problems offered by big-government progressives is — more government intervention.

The problem is they do not honestly assess the underlying foundational problems, but just see a symptom they perceive as a problem and go after that symptom in a vacuum. The causes listed above are the drivers of low-end wage stagnation. But rather than ratchet back those drivers, they pile another government solution on top of the government-caused problems — one that is already proven to make the problem yet worse.

It’s almost like there is a formula at work.

Nonetheless, the solution now being promulgated is to raise the minimum wage to $15 per hour. #Fightfor15 is the hashtag and rallying cry festooning the protest signs by people wholly unaware that the market might get the wages there if the immigration policy flipped and less money was required on failing benefits programs.

The obvious results of setting the minimum wage where central planners think it ought to be, and not where the market says it is, is that businesses will find ways around it. Legal ways. They will be forced to.

The first option: Automation. Where robotics and self-serve kiosks were too expensive at $8 per hour per worker, they no longer are at $15 per hour. They have now become less expensive than many workers. So companies invest in those, which results in minimum wage workers, and even those above that, being out of work completely. Workers lose jobs. $0 per hour.

The second option: Move. Companies pick up and move operations to a jurisdiction that does not have artificially high wages so they can compete effectively. Workers lose jobs. $0 per hour.

The third option: Downsize.  Companies either retrench at a smaller size or go out of business. Workers lose jobs. $0 per hour.

And guess what? This is exactly what has been happening in the uber-progressive city of Seattle, which has adopted the $15-per-hour minimum wage.

The city commissioned a study by economists at the University of Washington and published by the National Bureau of Economic Research. Those study results stunned progressives, but really just found basic economics and common sense at work: Low-wage workers’ incomes actually dropped, substantially, falling an average of $125 per month.

And this was only at a $13 hourly minimum wage, as the Seattle law ramped it up to $15 over a few years. If they allow it to continue, which the marching placard people want, it will continue to worsen the situation for the lowest end workers in Seattle through automation, movement and downsizing.

And the other component that will get worse is the income inequality bogeyman. Anyone want to guess how big government progressives will want to fix that?

Rod Thomson is a former journalist, author and is Founder of The Revolutionary Act.

Categories
Economy Immigration Markets Truth

Illegal Immigration Drives Income Inequality

Rod Thomson

Applying some common sense to the immigration debate offers an immense amount of clarity. And it reveals errors at both ends of the argument: Immigration is a powerful engine for economic growth, but wrong immigration can be a recipe for low wages and the bottom end of the scale, high governmental costs and high wages at the top end of the scale.

And there is wrong immigration. We’ve been practicing it for decades and are reaping the results.

The unstated policy of the past 30 years or so has been to have a de facto open border with Mexico that allows somewhere between 11 million and 20 million illegal immigrants — one of many problems is that we just don’t know — to be here and work, live and enjoy the benefits of this country.

But they are allowed to come illegally with a wink and a nod because politicians have opposed enforcing U.S. immigration laws. Yes, we have some fencing and a Border Patrol and we do stop some and send them back — about 250,000 annually. But they come right back again and eventually get through. And apparently we miss most the first time. The proof that the de facto policy is open borders is the 11-20 million people that are here illegally.

In the rest of the picture, we have legal immigration that takes many years and is an arduous and expensive journey. But because we are controlling it, we are getting immigrants that as a batch are capable of not only improving their own lives, but those of other Americans.

In 2014, 29 percent of the 36.7 million immigrants ages 25 and older had a bachelor’s degree or higher, compared to 30 percent of native-born adults. While that lines up nicely with the existing American population, the bottom end still does not: 30 percent of immigrants lacked a high school diploma or GED certificate compared to 10 percent of native-born Americans.

What this overall picture shows is that we allow — legally and illegally — millions of low-end workers into the country, and that has enormous consequences for low-income Americans.

 

Compassion for whom?

Often the defense of keeping quasi open borders is that we are a “compassionate” nation. Well yes, that is indisputable by practically every definition of charity at home and around the world.

But in the case of immigration, compassionate for whom? While letting millions of poor, unskilled, illiterate immigrants in our country may be showing compassion toward them, it is demonstrably not showing compassion toward tens of millions of poor Americans.

Consider: Millions of uneducated, unskilled and illiterate immigrants from south of the border come to America seeking a better life — or for many, just income to send money back “home.” The economics is undeniable: Their very presence depresses the low end of wages. They not only take millions of entry-level jobs, but also keep all those wages low or even lower them.

So the jobs “Americans won’t do” theoretically, are actually only jobs Americans won’t do at the prevailing wages. Without all those immigrants — legal or illegal, but most are illegal — low end wages would rise. Perhaps a lot. They would have to for supply to meet demand. It’s basic economics and the effect trickles up to middle class incomes.

How much? It’s hard to say, but George Borjas, Professor of Economics and Social Policy at the Harvard Kennedy School of Government, writes in Politico: “Wage trends over the past half-century suggest that a 10 percent increase in the number of workers with a particular set of skills probably lowers the wage of that group by at least 3 percent.”

This explains the flattening or declining of wages in real terms of lower skilled American workers with the huge influx of unskilled workers, and it is a minor tragedy that so few understand the reality.

But this also explains a big social bogeyman in American politics: income inequality.

 

A surprising source of income inequality

In a recent fascinating EconTalk podcast, Russ Roberts interviewed Borjas, himself an immigrant and leading expert in the economics of immigration, and Borjas laid out a fascinating case.

First off, immigration has historically increased capital, even with those who bring nothing to the country. They work for companies who provide goods, a percentage of them start and build successful companies, and overall the economy grows and capital is produced. This dynamic, along with a fairly free market capitalism and rule of law, explains the dramatic economic engine that the United States developed into after the Civil War.

If immigration demographics of skill level roughly mirror the makeup of the United States, then the net impact on the country is economic growth and capital growth, without much relative change in distribution between low, middle and upper incomes. Roughly, it’s a win-win-win.

However, if the immigration demographics do not mirror the country, there will be income distribution impacts. In the United States in recent decades we have seen immigration heavily weighted toward the low income end, depressing wages as explained above.

But it also has a converse impact.

Because capital has been expanded with the immigration, the value of people’s skills at the high end of the scale has gone up. This is because there are relatively fewer of these people to provide their services in an environment of both increased demand for them and increased capital due to immigration that is not mirroring the country’s current demographics.

There may be other policies that drive income inequality in a trade-off for another benefit, but there can be little doubt that the millions of illegal immigrants at the low end not only depress low-end wages but drive up high-end wages and create income inequality.

No public policies can alter the laws of economics. They are immutable. But public policies can alter the laws of immigration, which can positively impact the economics and the people in the economy.

That’s a debate worth having.

Categories
Economy Markets Minimum wage Truth

Does Raising the Minimum Wage Help the Low-Wage Earner?

The first thing to understand about the minimum wage is that it is a classic case of understandable emotionalism and frustration versus concrete data and economic reality. So the clearest explanation is a pros-and-cons listing.

On the pros side of increasing the minimum wage, people who are making it and who keep their jobs will make more money. Their increased earnings improve their purchasing power.

The cons side is a little lengthier.

Sharp increases in the minimum wage reduces the number of entry-level jobs

This, in turn, reduces the opportunity for unskilled workers to start getting experience. This is common sense. You cannot climb a ladder without stepping on the first rung. Minimum wage increases eliminates that first-rung opportunity for a certain number of mostly young or unskilled workers by making automation more affordable. It falls under the law of unintended consequences. The more a company must pay an unskilled worker, the more automation technology that was previously too expensive to make sense becomes affordable. Nine out of ten companies will go with the automation every time to remain competitive.

Minimum wage hikes raise prices for everyone

This naturally tends to hurt the people in the economic strata that the increase is most aimed at helping. WalMart’s everyday low prices will be higher if they have to pay every $10-per-hour employee $15 per hour. But it goes further. There were employees either doing better work or with more experience who were making maybe $14 or $17 per hour. They will demand, and deserve, higher wages. So this pushes wages higher up the ladder. Some will emotionally think this is win-win! But it’s closer to lose-lose. Every item from bread and milk and toilet paper to shirts, basketballs and trikes will cost more. McDonald’s value meals will be less of a value and gas prices will be higher than they otherwise would be. This will be true even when automation replaces some of those employees because remember, the increased employee costs are what made automation more affordable — but still more expensive than the previous cost for the employee.

This is not just theoretical

Seattle recently raised its minimum wage from $11 per hour to $15 per hour. In the first month after it was implemented, economists reported that 1,000 restaurant workers — just restaurant workers — lost their jobs. That was the largest one month job decline since the Great Recession while the overall economy was strong. But around the state of Washington, restaurant jobs increased 3.2%. Market forces are never trumped by government decree. And in some cases, a community can be so economically hot that it can absorb it — for awhile. But the out-of-balance market pricing will catch up eventually. This is market inevitability. So in a sense, dramatic minimum wage hikes create mini recessions among the low-wage workers even while increasing the costs of living for those same folks and everyone else.

Finally, the emotional tug is a bit of a false set up

Only a tiny percentage of people earning the minimum wage are trying to put food on the table. According to the Bureau of Labor Statistics, about 2.5% of all workers are on minimum wage. Of that, one-third are teens and more than half are under 25. So it is probably affecting only about 1% of the country’s workers over 25, and only a percentage of those actually have families. About two-thirds of all workers on minimum wage are second and third incomes in a family. So when the media does its inevitable story on some pitiable mother working two minimum wage jobs to try to make ends meet for her children, they are finding the needle in the haystack to stoke the emotional appeal that will actually hurt more of those same types of people.

The minimum wage’s positive impact on individuals is really quite minimal. As an aside, but so often the case, there is a political benefit to politicians who push the issue, playing to emotions over economic reality. But the reality of its negative impact on the broader economy, on all low-income workers and on companies competing globally is much larger — and fewer people are working and getting the opportunity to climb the ladder.

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Economy Government Truth

4 Reasons the Government Cannot Run the Economy

We continually see the relative failure of government actions to manipulate the economy to function at just the right, optimal level. There is a reason. Even if government was peopled by actual experts with a deep and wise understanding of economics, such actions would remain doomed to failure.

It’s not that an economy as powerful as the United States’ cannot endure government meddling for some period. But the meddling inevitably is harmful and hamstrings the economy. Conversely, it does allow politicians and government officials to posture for voters, which, mixed with well-intentioned ignorance, is the point of the action.

Here are four reasons why such interventions are doomed to fail.

1) Top down is not how economies operate

The government approaches the economy from the top down, considering it a contained engine that just needs to cool off, heat up, be stimulated, etc. This totally misunderstands an economy anywhere, but particularly in a quasi free-market economy. In this type of economy, but in all economies to a degree, decisions are made by millions of people. In the interconnected global economy, by billions of people.

Millions of people making individual decisions in unpredictable ways is not how an engine works. Engines are defined and explained. Millions of individual decisions are like micro organisms that result in the creation of ever changing markets and economies.

2) The inevitability of cycles

Economies will always cycle. Allowing self-correction is what would happen if it was understood that millions of people are making decisions and politicians were primarily interested in what is best for the most. Alas, self-correction is verboten!

Instead we get constant interference from centralized planning agencies in Washington, D.C., or Brussels, Belgium. Rather than the free market elevating what people want and dumping what people do not want so resources are allocated accordingly and efficiently — a process called “creative destruction” — government involves itself and makes the situation worse.

3) Bubbles and troubles

Bubbles are good and natural. Well, the natural ones are good. Bubbles happen organically in industries where there is creative destruction going on. New technology spawns a lot of competing companies, but only the best survive and thrive and the weaker are dumped. This is determined by millions of consumers’ decisions, not by government. Computers and smartphones are examples of how this worked fairly naturally, and the economy’s resources went to Apple and Samsung and away from Nokia and Motorola.

Some bubbles are government created. The real estate bubble that popped in 2007 happened when the government created laws requiring banks to lend to people who could not afford a mortgage so they would have the opportunity own a house. Great politics. Terrible policy. Naturally this generated a huge bubble in housing prices because of all the increased demand. When the economy cycled down, many of those people who should not have received a mortgage in the first place defaulted and we saw a downward spiral effect in which nearly everyone was hurt.

But there was a predictable compounding effect as government interfered further to fix what it had broke. After the housing bust, politicians such as George W. Bush and on a greater scale, Barack Obama, instituted more and more policies that made things worse and worse. Each step laid the groundwork for less market freedom, meaning less individual freedom, and consequently more government interference and control. The result was a historically long recession now called the Great Recession — mimicking in name, dynamics and causation the Great Depression.

4) Mixing in conflicting goals

Government works at odds with itself when trying to keep the economy humming — another engine metaphor. It is constantly issuing hundreds and thousands of new rules that businesses must learn and live under. These usually use up some resources that could be better deployed, and the actions ends up dampening the economy. They also consistently collide with the law of unintended consequences.

Minimum wage laws are an example of hurting those people they are intended to help. The Affordable Care Act, or Obamacare, is another example as costs have skyrocketed and the system is crumbling. And bringing this around, the Dodd-Frank financial reform act that was aimed at avoiding the financial fall-out of another real estate bubble and bailing out banks has had the perverse effect of creating even larger banks — banks too big to fail.

Government cannot run an economy because no one can. The economy that most prospers everyone is one in which individuals have maximum freedom in their consumer choices and in starting and running businesses. The economy the government runs most benefits those in government.