Tag Archives: economy

Why A One-Size-Fits-All Minimum Wage Doesn’t Work For America

It seems to me that federally enforced on-size-fits-all minimum wage legislation is an ineffective way for policy makers to improve the standard of living for this country’s people.

I completely agree that something needs to be done. There are a thousand different ways we could improve the standard of living for the entire country. Simple and effective ways we could close the income gap between the richest and the poorest among us, but $10.10 an hour isn’t one of them. Frankly, it’s lazy policy making.

$10.10 an hour means different things in different parts of the country:

I think it is difficult for people in different parts of the country to understand what $10.10 an hour means to one another. Someone in New York City probably thinks that $10.10 an hour is slave wages while someone in Jackson, Mississippi (capital of MS) probably considers $10.10 an hour a livable wage. That is because the average cost of living varies wildly from region to region in the United States.

Average Cost of Living

Housing Prices Vary Wildly Across Major Cities: 

We can quickly compare median sales prices for homes across the country (source):

City Median Sale Price
Manhattan, NY $1,175,000
Jackson, MS $184,502
Seattle, WA $435,000
Atlanta, GA $245,000
San Francisco, CA $945,000

Gas Prices Vary Wildly Across Major Cities: 

We can quickly compare gas prices across the country (source)

City Regular Mid Premium Diesel
Manhattan, NY $4.052 $4.216 $4.354 $4.479
Jackson, MS $3.440 $3.642 $3.812 $3.737
Seattle, WA $4.035 $4.152 $4.255 4.109
Atlanta, GA $3.692 $3.871 $4.045 $3.893
San Francisco, CA $4.225 $4.342 $4.440 $4.291

Note: There are similar variances for food and clothing costs.

It is important to realize that these major variances are across major cities. If you compare rural areas to cities the variance is even more dramatic. So why does anyone expect a one-sized-fits-all minimum wage to work across the country?

The Solution: A Livable Wage that Fits

If we want to increase the minimum wage it seems like we need to make an effort to understand what that wage is in each part of country. We should not pick a number that everyone is expected to implement across the board. The country is to diverse for that to be successful.

What may be a fit for Seattle, WA would probably be overly burdensome to businesses in Jackson, MS. What may work in Jackson, MS would probably be insufficient in Manhattan, NY. So why do we treat wages the same when costs across the country are provably and undeniably different? This makes no sense to me.

Instead, it seems like we should empower our communities and local policy makers to actin the best interest of their constituents by providing the people living there with critical data and information to make better decisions for themselves. And if we are going to implement something federally (which I don’t think we should) – shouldn’t we at least make an effort to make it work for everyone?

We are a great country because of our diversity. There is something, somewhere, for everyone. We have always embraced that mantra. I don’t think we should stop now.

The Economics of Compounded Growth

Our economy slowly grows at around 4% a year. This is a given. An expectation. Anything less is seen as a failure, anything more is an achievement.

I read an article today that did a good job of putting that kind of growth into perspective.

“Let us imagine that in 3030BC the total possessions of the people of Egypt filled one cubic metre. Let us propose that these possessions grew by 4.5% a year. How big would that stash have been by the Battle of Actium in 30BC? This is the calculation performed by the investment banker Jeremy Grantham(1).
The trajectory of compound growth shows that the scouring of the planet has only just begun. We simply can’t go on this way.

Go on, take a guess. Ten times the size of the pyramids? All the sand in the Sahara? The Atlantic ocean? The volume of the planet? A little more? It’s 2.5 billion billion solar systems(2).”

This idea makes me wonder: Where is our breaking point? Where is the point in which we can’t sustain growth any longer? And what is our contingency plan?

I don’t know. Maybe we are already there. Maybe technology will let us keep going further than any of us ever dreamed. I don’t claim to know, but it’s certainly something we should all consider.

Is $15 a fair minimum wage?

This morning in Atlanta, GA fast food workers are going on strike in an effort to demand a higher minimum wage of $15 per hour. That is $31,500 a year for a full time fast food employee (not including benefits).

As matter of practice I believe it is good policy for any given employer to treat their employees with a certain amount of dignity and respect – including paying their employees a fair wage. I believe this not just on moral grounds, but also as a matter of doing good business and competing in the marketplace.

For example, companies like McDonalds and Wal-Mart are notorious for treating and paying their long-time employees poorly. In response this has directly affected the quality of their businesses (no one shops at Wal-Mart or McDonald’s for the ambiance) and, perhaps more importantly, degrades their reputation with the consumer. In the long run this is just bad business.

Bad business doesn’t mean that the Government should necessarily litigate their business practices though. Bad business decisions for one company presents a new opportunity for another company (thus opening up new opportunities for employees as well). For example, companies like Costco and Chick-fil-a have decided to pay employees better and implement a different sort of culture. Ultimately, this has lead to better quality services, higher profits, and happier employees – all without Government intervention.

Problems with an artificially high minimum wage:

While the idea of every worker, regardless of their job title, earning over $30,000 per year may sound like a good idea to some people – it is important to point out that there are many unforeseen consequences.

1. It disrupts small business’s ability to compete.

Mandating an artificially high minimum wage (especially one as high as $15/hr) makes it very difficult for businesses to compete in the market place.

For example, let’s say that a local retail boutique (The Little Apple Boutique) offer’s high wages in an effort to draw in the best employees. They need these employees because part of their business model is to offer superior customer service in exchange for moderately higher prices for their goods. Their profit margins are low because the cost of paying their employees and running the business is high, but this is the niche that they have carved out for their business and it’s working.

When an artificial minimum wage is introduced this destroys The Little Apple Boutique’s ability to execute their business plan. They can no longer attract the best employees because every other business in the area is offering the same wage. The Little Apple Boutique can’t afford to raise their wages any higher and stay in business.  Six months later customers begin to complain that The Little Apple Boutique’s customer service isn’t what is used to be. Twelve months later The Little Apple Boutique is out of business.

2. High minimum wage closes the gap between the poor and the middle class, but not between the 1% and 99%.

In general, people are very aware (and concerned) about wealth inequality in America. There is a constantly growing gap between the super-rich and everyone else. But rather than addressing that inequality gap an artificially high minimum wage could serve to expand it.

US Wealth Distribution

2a. High minimum wages hurt small businesses and but do not affect big corporations

Most of the poor and middle class people in America shop at the same places. (We all shop at places like Wal-Mart, Target, Publix, McDonald’s, etc.) The places that we can afford to shop, in general, employee a large number of employees at or slightly above the current minimum wage.

Higher minimum wage (especially $15/hr) will ultimately drive prices up at places where the poor and middle class shop. Overall this means that the middle class will be poorer (assuming they already made above minimum wage, but now have higher prices) and only serve the poor marginally (assuming the poor now make $15/hr, but now have to pay higher prices).

The one class that the higher minimum wage does not affect is the rich. Moderately higher prices do not affect their lifestyle and they probably don’t shop at McDonalds or Wal-Mart anyways.

2b. Higher minimum wages hurt middle class small businesses, not rich corporations, ultimately helping the rich corporations.

On the surface, this seems like a battle waged against big and evil corporations. The type of corporations that treat their employees like trash and serve us mediocre food. We see this as a battle for the poor and against companies like Wal-Mart and McDonald’s. This is not the truth.

Ultimately, this is a fight against the middle class and an apathetic super-rich. If the people successfully lobby the Government to pass an artificially high minimum wage (specifically one as high as $15/hr) it will hurt small, middle class business – not the evil corporations.

In the long run companies like McDonalds and Wal-Mart will survive the minimum wage hikes. They will pass the expense on to their customers, to their suppliers of beef and paper products (who are probably small/medium sized businesses) and keep the profits for themselves. In fact, the poor (who shop at Wal-Mart) will keep shopping there, but since they make more money they will spend more. Ultimately giving Wal-Mart even more profits. Ironic.

The companies that will ultimately go out of business are the ones that ultimately treat their employees with respect in the first place. Small businesses like The Little Apple Boutique, Local Farmers, and Diners will go out of business. And in the end we will all keep shopping at Wal-Mart, but this time paying higher prices for the same bad service we’ve always had.

3. Outsourcing and the Value of low skilled labor

In the labor market of individuals who are paid less than $15/hr there are basically two classes: 1. low-skilled manual labor (cashier, hamburger cook) and 2. skilled-labor that doesn’t demand much money (tech support). I want to discuss how a higher minimum wage will affect each of these two classes.

3a. Does the low-skill labor demand $15/hr?

When people think about those people who are unfairly treated by their employers (and who deserve a higher wage) they often imagine the poor mother with two kids who cannot make ends meet. She gives life everything she has, but can’t make it. It is unfair.

This is a action-provoking idea, but it does not reflect the situation of the majority of minimum wage workers. Rather it serves as an artificial “poster child” used by lobbying groups to evoke emotion from the masses.

The truth is that over half of minimum wage workers are young people (probably in school and still gaining skills) not bread-winners. A research by the Pew Research Center shows that 50.6% are ages 16 to 24; 24% are teenagers (ages 16 to 19).

This begs the question: Do 16 year old teenagers and college students really need (or do their skills demand) $15/hr? I don’t think so and I do not think an artificially high minimum wage is an appropriate way to address the rare case of a struggling mother. There are numerous, more efficient, way to manage such cases.

3b. Skill-Labor: Outsourced jobs that could be in America:

The problem with most skilled-labor jobs that pay less than $15/hr is that they are easily outsourced to countries that do not have minimum wage standards or the job is subject to being automated.

The average outsourced job in India pays $13.46/hr ($28,000/yr). That is over $1.50 less than the proposed minimum wage of $15/hr. This means that all jobs that can be outsourced will be outsourced (or automated). 

The other idea to consider is that companies are smart. We already see retail stores replacing cashiers with automated machines. Would it seem strange to think that our food may be cooked by robots in the near future? I don’t.

In the future a $15/hr job might mean no job at all for many Americans. Food for thought.

Taxes, Bankruptsy, and the Future of the American Economy

Three things are happening to the American economy that are ultimately unsustainable:

1. Rising national debt.
2. Simultaneous increase in military  presence and social programs.
3. The federal reserve continues to pump $85 billion dollars into the economy monthly.

The only solution seems to be a massive overhaul of our current economic methodology, but first we need to understand where are our tax dollars are going and what solutions are available.

Tax Expenditure in America

Major areas of spending breaks down as follows [source]:

Military: $929B
Mandatory Spending:
Medicare & Medicaid: $802B
Social Security: $768B

These three programs account for about 75% of the total national budget. This means that, without major budget overhaul, mandatory spending alone will quickly exceed all federal revenues.

“Since the federal government has historically collected about 18.4% of GDP in tax revenues, this means these three mandatory programs may absorb all federal revenues sometime around 2050. Unless these long-term fiscal imbalances are addressed by reforms to these programs, raising taxes or drastic cuts in discretionary programs, the federal government will at some point be unable to pay its obligations without significant risk to the value of the dollar (inflation).” [source]

If the United States continues its current model without significant reductions in military or entitlement programs we can safely assume that taxes will continue to increase until we are more closely aligned to western European countries.

Comparables: Tax in the U.S and Europe

Currently the United States collects 26.2% of total GDP in taxes (State + Federal). That puts us at number 62 between South Africa and Kazakhstan. [source] We can compare this to the top 10, which include countries like Denmark and France, who each collect well over 40% of GDP in tax Revenue. But that number doesn’t mean much because every country has a different GDP and population. So we have to look at something else.

Perhaps a better number to look at is total tax revenue per capita where the United States ranks 14th.  [source] The U.S. collects about $13,084.80 per person in Tax Revenue, which puts us more closely in line with countries like Denmark ($18,100) and France ($15,120). Maybe that doesn’t sound like much, but it would take over 1.5 trillion dollars in tax revenue to catch up to Denmark or 600 billion to catch up to France. That would be about ¼ of our current budget.

Solutions: What should we do?

It seems pretty clear that doing nothing is not an option. We can’t cut taxes, expand military, and social programs. That doesn’t work. So what gives?

To avoid bankruptcy the most likely scenario is a combination of modest reductions in spending and increased taxes. Considering the size of our economy and military these changes could be relatively nominal.

For example, if the U.S. were to reduce military by 25% and increase taxes by 2.5% of GDP that would be a swing of $624.25B. Maybe we could even do some unorthodox thing like legalize marijuana and tax the hell out of it. Some studies estimate another $8.7B in federal tax revenue a year. That would put us at $632.25B.

A number like that wouldn’t burden the economy and would put us right up there with Western European countries like France. Perhaps that is something we can all live with.

This for That: Enslaved by ancient ideas about middle-class-ism

Today I read an article by Ian Kath called “We sold our life for trinkets.” In the article Ian describes the idea that many people are enslaved by a vicious cycle of consumerism that ultimately leads to an empty existence. One feels the need to consume, to have more and more “stuff”, and in turn this need for “stuff” drives one to perform basically meaningless tasks sometimes called “work” to obtain more and more “trinkets”. Even if the “work” performed involves browsing the internet for 40 hours a week.

Ian summarizes:

Our life force is consumed in the workforce on worthless activity in exchange for money for the latest gadget or fancier house. We have been indentured to the ruling elite. The 1%.

This for That

The world economy is made up of a “this for that” system. We do this, we pay this, we trade this – for that. All transactions are based on specific set of numbers (currency) in exchange for a physical item we desire. Those numbers are later traded to someone else for other physical items they desire. And all this begs the question: If technology is getting more and more efficient, the demand for efficient people is becoming less and less – then how do people earn currency to exchange for the widgets they so badly desire?

David Graeber from the Sydney Morning Herald wrote an entire on the subject called “The modern phenomenon of nonsense jobs“. David says:

It’s as if someone were out there making up pointless jobs just for the sake of keeping us all working. And here lies the mystery. In capitalism, this is precisely what is not supposed to happen…this is the sort of very problem that market competition is supposed to fix. According to economic theory, at least, the last thing a profit-seeking business is going to do is shell out money to workers they don’t really need to employ. Still, somehow, it happens.

And if you have a job where you are really busy maybe you think this sounds crazy, but I can assure you that there are professionals all around the country browsing the internet. In fact, it’s common knowledge among internet bloggers to publish your articles on week days just after 9am. Droves of professionals are sitting in front of their computers at work, just made their first cup of coffee, and are now surfing the internet… So has capitalism failed us? Are the ideas of “a person must be productive” archaic? Are we ironically enslaved by middle-class-ism? Maybe so.

A New Way Forward

So is there a new way we aren’t aware of?  Why aren’t there more jobs available where people just think shit up. Where people just focus on making the world awesome. Jobs where people just go out and make things pretty. Clean shit all day. Come up with creative ways to ease traffic, etc.

Then again, who would pay for such a venture. Tax payers? Hell no! I don’t trust the Government to do a good job on this. Or is our entire system of currency, paying for things, “this for that”, archaic? Will we look back on our current value system – the “this for that” system and think it was pretty stupid.

Are we in the beginning stages of a new system of living – one where 100% of the population doesn’t have to be productive? Maybe we are witnessing the early stages of a value change. A change to a new system more accurately aligned with our technological capabilities rather than our current system which is largely driven by ancient instincts that require aimlessly productive human resource units.

It’s an interesting path to think about, but I’m not quite sure how it would work. Who decides who has to stock the shelves at a grocery store versus who gets to be a thinker? Society? The invisible hand of the market? Maybe the future currency will be the true value you prove you can provide to society. Still not sure how that would work, but it is an interesting thing to think about.

Is Wal-Mart as evil as they say?

Yesterday I was on a long commute from Atlanta, GA to Jacksonville, FL. On the radio was conservative political personality Sean Hannity. At one point during the show Sean Hannity had about an hour long interview with Wal-Mart CEO, Bill Simon. During the entire interview Sean Hannity lobbed soft-ball questions Simon’s way (because they were so easy to knock out of the park). Frankly the entire interview was disgusting and at one point Sean Hannity even said, “You guys should be advertising with us, we are huge supporters… I mean, I’m a Wal-Mart guy.” At that point I decided pull over and vomit.

The majority of the interview focused on two key things:

1. the fact that Wal-Mart employed around 100,000 veterans and a slew of elderly people, and
2. a barrage of criticism of anyone who has bad things to say about Wal-Mart

Sean Hannity basically slobbered all over Bill Simon’s metaphorical nether-region then praised him for being a true patriot and job creator. That got me thinking: Is Wal-Mart as bad as they say?

How Bad/Good is Wal-Mart, Really?

Like almost anything Wal-Mart is a mixed bag. They do create millions of jobs for people across America and they offer affordable prices. Their business model is perfectly legal and frankly a pretty good example of free-market capitalism. They found a niche (cheap retail) and used good business sense and leverage their size and power to capitalize on opportunities. Can I really complain about that? No, not really.

But let’s be honest. Wal-Mart is not the most considerate company either and that’s where I think they deserve some critique. And if Hannity wasn’t too busy massaging Bill Simon’s….ahem…ego in hopes of a little ad revenue perhaps he would have made this point too.

While Wal-Mart does provide a lot of jobs their overall business model has led to a corporate culture that is less than savory. Their retail employees are generally low paid  and Wal-Mart corporate is notoriously difficult to deal with. I would even argue that this strategy will eventually lead to their own demise. Let’s examine.

For one thing I know of almost no one who thinks positively about Wal-Mart. Most people think of the less-than-pleasant atmosphere, their relatively rude and unpleasant staff, and the if you’ve dealt with them professionally – their corporate bully tactics. All of this culminates to a bucket full of ill will and general distaste. I, for one, would rather pay the Costco membership fee than go to Wal-Mart and I think more and more households are making that choice too.

Another issue I have with Wal-Mart is their overall lack of generosity. Sure their employees are relatively unskilled labor, but why not pay them a bit better to attract better talent? In fact, the head of Wal-Mart’s food chain sports a number of billionaire’s. Who needs a billion dollars and why not spread the wealth? I’m all for capitalism and reaping the rewards of hard work, but what does it say about the upper management of Wal-Mart that doesn’t spread the wealth voluntarily?

I look at Costco’s CEO, for example, who takes a salary of $500,000 a year. The rest is spread to employees of the company who all work full time jobs that pay a good wage with benefits. The result is great customer service, a nice shopping atmosphere, and even (in my opinion) better customers.

What I’m saying is…

So I guess what I’m trying to say is that I can’t knock Wal-Mart for being hard-core capitalist predators. I can’t say bad things about the number of jobs they provide, their low prices, or even their no-nonsense business practices. I guess that is what a business does. They are responsible to their shareholders for growth.

BUT what I can critique is their leader’s refusal to give up a little of their own wealth and success willingly to promote a little corporate consciousness. In the long run, I would argue, it would actually help their brand.

I also think this is a good example of why you can’t listen to anyone in the media. They are too concerned with ad dollars and not concerned enough with asking good questions.

Hurricane Sandy Relief – More Conservative States Actually Receive Federal Aid than their Liberal Counterparts

I ran across this Wikipedia article today that listed each state by net contribution per capita. Those with a negative net contribution per capita (in red) actually receive more federal aid per person than they pay in tax dollars.

Rank State Revenue (millions) Population Revenue per capita Spending (millions) Spending per capita Net contribution per capita
1 Delaware $16,858 864,764 $19,494 $6,234 $7,209 $12,285
2 Minnesota $78,697 5,197,621 $15,141 $40,075 $7,710 $7,431
3 New Jersey $121,678 8,685,920 $14,009 $63,972 $7,365 $6,644
4 Connecticut $54,236 3,502,309 $15,486 $32,378 $9,245 $6,241
5 New York $244,673 19,297,729 $12,679 $157,789 $8,177 $4,502
6 Illinois $135,458 12,852,548 $10,539 $88,669 $6,899 $3,640
7 Nebraska $19,043 1,774,571 $10,731 $13,986 $7,881 $2,850
8 Rhode Island $11,967 1,057,832 $11,313 $9,077 $8,581 $2,732
9 Texas $225,391 23,904,380 $9,429 $171,766 $7,186 $2,243
10 Colorado $45,404 4,861,515 $9,340 $34,828 $7,164 $2,176
11 Massachusetts $74,782 6,449,755 $11,595 $61,028 $9,462 $2,133
12 Arkansas $27,340 2,834,797 $9,644 $22,454 $7,921 $1,723
13 Nevada $19,619 2,565,382 $7,648 $15,474 $6,032 $1,616
14 California $313,999 36,553,215 $8,590 $260,422 $7,124 $1,466
15 North Carolina $75,904 9,061,032 $8,377 $65,863 $7,269 $1,108
16 Wisconsin $43,778 5,601,640 $7,815 $38,177 $6,815 $1,000
17 Washington $57,450 6,468,424 $8,882 $52,455 $8,109 $773
18 Georgia $75,218 9,544,750 $7,881 $71,079 $7,447 $433
19 Ohio $105,773 11,466,917 $9,224 $105,214 $9,175 $49
20 Kansas $22,311 2,775,997 $8,037 $22,737 $8,191 ($154)
21 Michigan $69,924 10,071,822 $6,943 $71,652 $7,114 ($171)
22 New Hampshire $9,304 1,315,828 $7,071 $9,764 $7,420 ($349)
23 Oklahoma $29,325 3,617,316 $8,107 $30,686 $8,483 ($376)
24 Pennsylvania $112,368 12,432,792 $9,038 $117,151 $9,423 ($385)
25 Oregon $23,467 3,747,455 $6,262 $25,242 $6,736 ($474)
26 Florida $136,476 18,251,243 $7,478 $147,091 $8,059 ($581)
27 Tennessee $47,747 6,156,719 $7,755 $51,456 $8,358 ($603)
28 Indiana $42,668 6,345,289 $6,724 $47,254 $7,447 ($723)
29 Utah $15,064 2,645,330 $5,694 $17,158 $6,486 ($792)
30 Iowa $18,437 2,988,046 $6,170 $21,649 $7,245 ($1,075)
31 Missouri $48,568 5,878,415 $8,262 $55,564 $9,452 ($1,190)
32 Wyoming $4,725 522,830 $9,037 $5,355 $10,242 ($1,205)
33 Idaho $9,025 1,499,402 $6,019 $10,946 $7,300 ($1,281)
34 Arizona $35,485 6,338,755 $5,598 $48,012 $7,574 ($1,976)
35 Louisiana $33,677 4,293,204 $7,844 $43,036 $10,024 ($2,180)
36 Vermont $3,806 621,254 $6,126 $5,579 $8,980 ($2,854)
37 Maryland $53,705 5,618,344 $9,559 $70,617 $12,569 ($3,010)
38 Kentucky $23,151 4,241,474 $5,458 $35,927 $8,470 ($3,012)
39 Puerto Rico[5] $3,549 3,941,459 $888 $16,798 $4,262 ($3,374)
40 South Carolina $20,499 4,407,709 $4,651 $37,056 $8,407 ($3,756)
41 Montana $4,523 957,861 $4,722 $8,497 $8,871 ($4,149)
42 Maine $6,289 1,317,207 $4,775 $11,850 $8,996 ($4,221)
43 South Dakota $4,766 796,214 $5,985 $8,280 $10,399 ($4,414)
44 North Dakota $3,660 639,715 $5,721 $6,766 $10,577 ($4,856)
45 Hawaii $7,666 1,283,388 $5,974 $14,062 $10,957 ($4,983)
46 Alabama $24,149 4,627,851 $5,218 $47,889 $10,348 ($5,130)
47 West Virginia $6,522 1,812,035 $3,599 $17,067 $9,419 ($5,820)
48 Virginia $61,990 7,712,091 $8,038 $110,105 $14,277 ($6,239)
49 Mississippi $10,869 2,918,785 $3,724 $30,616 $10,489 ($6,765)
50 New Mexico $8,346 1,969,915 $4,237 $22,418 $11,380 ($7,143)
51 Alaska $4,287 683,478 $6,273 $9,378 $13,721 ($7,448)
52 District of Columbia[6] $20,394 588,292 $34,666 $43,475 $73,900 ($39,234)

As a fiscal conservative I find it a bit ironic that many of those states that claim to be the most conservative actually receive the most federal aid per person. I find it even more troubling that these same conservatives are complaining about the approval of Sandy relief paid for by tax dollars.

Undoubtedly the Sandy relief comes with a ton or pork barrel spending attached to it, but I say it’s better the money goes to Americans who need it rather than senseless wars. In fact, maybe we conservatives should take a look at the aid received by our own state before we start complaining too much.

I’m all for bitching about federal budgets and over spending, but I’m not going to accuse a fellow American, one in the Northeast states affected by Sandy, for being irresponsible for not having enough hurricane insurance. They need and deserve the help. I say we praise the Government for helping people – then condemn them for drone attacks on citizens. Not the other way round.