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Minimum wage Politics Progressives Truth

Stop It, America. Politicians Can Not Make Our Lives Better

Rod Thomson

Here’s the deal, if you are looking to this president, or you were looking to the past president, or you are looking to a future president to make your life better you’re on a fool’s errand. It was the furthest thing from the minds of the Founders and Framers that any individual should have such power and sway.

If you are looking to Congress — this Congress or a past Congress or a future Congress — to make your life better you’re on a fool’s errand. It was maybe the second furthest thing from the minds of the Founders and Framers that any part of the federal government could so greatly impact your life.

There is very little government can do to make your life better. There are quite a few things government can do to make your life worse. (See: All of history.) Most of your problems in life are going to be up to you to solve, to improve or at least to deal with. 

For instance, if you want to make more money you’re going to either have to work harder and/or longer, or get training or education to get a better paying job. And if you keep making the same decisions you’ve made all along, and you’re 35 and stuck working at Walmart at minimum wage, there’s nothing the government can or should do for you. You need to change your choices to change your future. If the government steps in to improve your future for you, it inevitably begins a cascade of events that makes many lives worse, including yours eventually.

When governments try to solve poverty by giving poor people a little more money each month, they actually end up keeping them subsistent on government largesse and locked in a hopeless cycle. This has been demonstrated for 50 years now. And the government forcibly takes other people’s money to do it; lose-lose.

The best overall situation is when we can all act freely; free people exchanging goods and services for money freely in markets that are both free and competitive. That simple, relational structure has lifted, literally, billions out of poverty in the past 40 years. Government’s primary role was to stay out of the way, with a small role in making sure there were no monopolies and there were courts to settle contractual disputes.

This is well-documented through our history, but it is not well-known among our population. Schools, universities and the media are the primary culprits in purveying this ignorance. There may be a role for a temporary safety net, but because politicians are politicians it always grows, such as what we have now with enormous entitlements and transfer payments.

But promising more giveaways often garners votes. Some would say buys votes.

So naturally, we have a lot of politicians saying that they can, and will, make things more fair for you, make things better for you and give you this, that and everything you want. Just vote for them. Well not to burst your bubble but there’s nothing they can give you except that they take it from someone else, through taxes now or taxes later to pay off deficit spending now. And eventually they’ll be taking it from you, too, unless you stay at the bottom in poverty, in which case the government will in due time run out of other peoples’ money and then you are lost, too. More lose-lose.

As Margaret Thatcher said: “The trouble with Socialism is that eventually you run out of other people’s money.”

The better way, the only proven way, is the collective intelligence of hundreds of millions of Americans, and even billions of people around the world. This is almost infinitely greater than any group of central-planning politicians. (See Russia’s five-year plans, East Germany’s junk new cars, Maoist China’s everything, Venezuela’s oil.) 

So when you hear all these politicians promising a plan for this and a plan for that, trillions here and trillions there, remember that the Great Society government plan to end poverty starting in the late 1960s under President Lyndon Johnson resulted in the transfer of $22 trillion from working Americans to poor Americans. It was not charity. It was government force, benefitting politicians along the way, but no one else. The result was that as of today, there is virtually no change in the poverty rate. More welfare programs will have the same net effect until all of the money is gone.

No politician is going to improve your life. That is going to be up to you and your choices. The American dream does not come from government; it relies on a constrained government. It then comes via each American exercising their individual God-given natural rights in liberty.

Rod Thomson is an author, past Salem radio host, ABC TV commentator, former journalist and is Founder of The Revolutionary Act. 


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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 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.