A Reasonable Proposal on the Minimum Wage


Gather ‘round, kids, time for Crazy Uncle Bob to go off on another one of his political rants. This time I’m taking aim at the “Fight For 15” Campaign, one of the apparently far-left movements that seems to be gaining some traction as a way for the Democrats to both look like they are on the far fringe of socialism and at the same time are completely ignoring the Rust Belt workers all the pundits say they lost in the last twenty years which has cost them the middle of the country.

Truth is, there’s a lot to deride in this particular movement, not the least of which is the fact that whoever came up with the idea of a $15 an hour minimum wage seems to have pulled that number out of a very large hat. There are a few other things to look at sideways in this movement, most significantly the “all or nothing” attitude that seems to have taken hold in contemporary politics. It doesn’t help that the arguments in favor of this more than doubling of the minimum wage seems to be exclusively predicated on an argument that lies somewhere between “people need it” and “people deserve it”.

On the other hand, the arguments I’ve most often heard against it tend to come down to (a) minimum wage jobs are intended for entry level workers, not people supporting families, so running it up would only hurt business and (b) raising the minimum wage would drive up inflation. Considering the last I checked “business” is doing just fine, and with a sweet little tax cut in the works crying poor mouth on behalf of businesses is a hard sell in a one-sided recovery that as of May Goldman-Sachs was predicting had a 2/3 chance of being the longest on record. As far as inflation concerns go, the current inflation rate is 2.2% for the last 12 months as of September 2017 according to the Labor Department, which is hardly something to sound an alarm about.

But as I see it, none of that is really the problem in this whole debate. The problem is that, as I mentioned before, both sides have dug in with their cherished positions and neither one is considering anything resembling actual… you know… facts. Which I am more than willing to admit included myself. Until recently.

I finally got tired of the ridiculous notion of a $15 an hour minimum wage, so I decided to get some serious ammunition to use against the proponents of this monstrous idea, something nobody had ever brought out before. I decided to do a little digging and see what the actual history of the minimum wage was. According to CNN Money, the Federal Minimum wage has been increased almost two dozen times since its inception, so increasing it is not exactly a novel idea. However, using the inflation calculator at http://www.usinflationcalculator.com/ a couple of interesting facts emerge. The first is that, in inflation adjusted 2017 dollars, the minimum wage actually topped out in 1968 at $11.35. Now granted, that’s no $15 an hour, but it’s a far cry from $7.25 an hour. Another thing that jumped out at me was the trend line. Take a look at the table below and tell me if you notice anything:

Year Minimum Wage IAD 2017
1938 $0.25 $4.38
1939 $0.30 $5.33
1945 $0.40 $5.48
1950 $0.75 $7.68
1956 $1.00 $9.07
1961 $1.15 $9.49
1963 $1.25 $10.08
1967 $1.40 $10.35
1968 $1.60 $11.35
1975 $2.10 $9.63
1976 $2.30 $9.98
1979 $2.90 $9.86
1980 $3.10 $9.29
1981 $3.35 $9.10
1990 $3.80 $7.18
1991 $4.25 $7.70
1996 $4.75 $6.69
1997 $5.15 $6.54
2007 $5.85 $6.96
2008 $6.55 $7.51
2009 $7.25 $8.34

 

Do you see what I see? Because I see not just the minimum wage going up, but real purchasing power going up for the first… I dunno… thirty years. Consistently. That’s across Democratic and Republican administrations (although maybe Eisenhower was just a softy). Then the slow, occasionally interrupted downward trend started, and that was bipartisan too. It wasn’t until George W. Bush’s second term that we started to see an upward trend in real purchasing power for the minimum wage again.

So with these facts in hand, I would like to steer the conversation in a new direction by posing a question nobody seems to be asking: what is the purpose of the minimum wage? It’s not enough to say the purpose of a minimum wage is to put a price floor on labor; that is the effect. The purpose is the reason we institute such a law in the first place. The only moral justification for such a price floor is to ensure that workers who cannot otherwise command a sufficient wage may do so. Such workers, though it seems impolitic to say so in this day and age, tend to be either uneducated, lack desirable skills, or lack sufficient job history. But they still need to make enough to get by, even if “getting by” doesn’t mean much.

Looking at the trends above, this certainly seems more in line with the original intent of the minimum wage, and I believe that there is a way to get there without going so far as to demand $15 an hour, which even when viewing the historical record seems excessive. Going off the average rate of increase in real purchasing power for the first thirty years of the program and looking at the adjusted peak of the minimum wage, the logical solution is to set the minimum wage at $12.85 an hour. Heck, I’d even be willing to go up to $13.00 an hour for folks who like round numbers. After that peg it to inflation and call it a day.

Both sides are missing out on an opportunity by passing up on a compromise like this. Getting the minimum wage meaningfully into the double digits would be a win for the liberals, even if it isn’t $15 an hour. And for the Republicans? With the absurd tax plan they’re trying to railroad through Congress, tacking on a meaningful minimum wage increase would not only give serious cover to blue state Republicans, it might even be enough to tempt red state Democrats. If nothing else it would be something better to point to and say “See? We really DO care about the middle class and the poor!”

But I know it’ll never happen. Because this isn’t the season for reasonable proposals.

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Betting the Farm on a Pair of Twos


Back when I was in my late teens, I was about average for a teenage boy. Which is to say I was a dumbass. Strike that: I was a pig-headed, obstinate, willful, ignorant dumbass. (And that’s being somewhat charitable.) I had all the hallmarks of your typical teenage male: I was always sure I was right, I wouldn’t listen to others, I had to have things my way… you know the drill. Finally things got to the point where my parents were just about done with me, and a good family friend sat me down for a talk.

He approached me with advice that I remember to this day: “Don’t bet the farm on a pair of twos.”

He didn’t tell me I was wrong, he didn’t tell me to shut up and listen to my elders, any of the usual approaches that do no good with someone like that. He simply explained to me in excruciating detail how I was basically powerless to affect any real change, and if I kept pushing things I was going to end up alienating everyone who cared about me and anyone who might agree with me. He also answered my usual outraged protests about how I was in the right by pointing out this had nothing to do with right and wrong, this was about who was in charge. There are those who have power, and those who don’t. I could keep going the way I was and lose every friend I had, or I could back off and wait for a time when I had some influence or things might go my way.

It was good advice, and I bring it up because I see the House Republicans doing the same thing today. Whether or not I agree with their politics is irrelevant. The majority of the Senate does not, and President Obama most certainly does not. By continuing to press forward with bills that they know will never be accepted, not only daring but de facto demanding a government shutdown, the Republicans are betting the farm on a pair of twos. The farm in this case is the U.S. economy and the pair of twos is any possibility that the Democrats and Pres. Obama will take more flak from the American public over the shutdown than the Republicans will. After the spanking that the economy took after the last debt limit crisis, in what universe does it seem like a good idea to hold the economy hostage in an effort to “stand by your principles”? Do they really believe that the majority of Americans won’t notice, or even better, will thank them for it?

I understand that on all the news shows the Republican (and especially Tea Party) leadership is repeating ad nauseum that Americans don’t want the Affordable Care Act. For all I know they’re right, although as usual I am mighty suspicious when someone is so insistent about something that benefits them so completely and costs them nothing. That having been said, I would expect a party so concerned with fiscal responsibility to understand the concept of “costs and benefits”. The cost to waging this particular battle when there is, quite literally, no hope of winning is astronomically high; the benefits are extraordinarily low, unless they are still listening to the same pollsters who told them right up to the eleventh hour that Mitt Romney would win the White House.

The real problem is that in this particular poker game, the guys deciding to stay in to the last card aren’t putting up the blind, and they don’t have to pay up when the showdown is over. That falls on the rest of us, and that time is coming fast.


We Don’t Need No Stinking Incentives!


Two news stories caught my attention recently, both for revealing the federal government’s (and particularly the executive branch) shocking ability to ignore one of the basic laws of economics and psychology (and maybe sociology, but I never studied much of that). Pretty much both of these fields agree, to a greater or lesser extent and for various reasons, that people will respond to incentives. In psychology they call it things like “positive and negative reinforcement”, but apparently in the government they call it “ignore the consequences and just do things you want because the ends always justify the means”.

The first of these stories was a report by the Washington Post that President Obama is leaning on banks to “make home loans to people with weaker credit” (direct quote from headline there). According to the Obama administration, lenders should “use more subjective judgment in determining whether to offer a loan”. Personally I find that a little disconcerting, since according to that same article “since the financial crisis in 2008, the government has shaped most of the housing market, insuring between 80 percent and 90 percent of all new loans, according to the industry publication Inside Mortgage Finance.”

Hey, what’s the key phrase in that last sentence? Was it “financial crisis in 2008”? Why yes, yes it was. I seem to vaguely recall that one. It was triggered by something… let me think… oh, that’s right, a housing bubble driven in large part by risky borrowing, which has been attributed by some (including me) in large part to government policies pushing for more home ownership and led to a bail out of Fannie May and Freddie Mac. But they’re cool now, right? Let’s go back to the Washington Post for confirmation: “the government has shaped most of the housing market, insuring between 80 percent and 90 percent of all new loans…primarily through the Federal Housing Administration, which is part of the executive branch, and taxpayer-backed mortgage giants Fannie Mae and Freddie Mac.” Oh. But that’s not a problem, is it? “If borrowers with FHA loans default on their payments, taxpayers are on the line” – and we’ve already bailed out Fannie and Freddy once before in recent memory.

So what we have here is a political agenda that completely ignores not just economic law and historical trends but recent memory in favor of “doing the right thing” and wishful thinking. Because that’s never caused us any problems before. Here’s a thought: maybe the banks are being overcautious, but they have reason to be. Or maybe they’re being just as cautious as they should be, given that the market hasn’t sufficiently recovered yet. I honestly don’t know. And lest I be accused of being a demagogue, let me point out that I’m arguing against my own interests here. As I’ve noted before, I’d be much better off if the banks started giving out easy money again, because then my wife and I could buy a house (we passed on the last round of insanity). However that’s in the short term, and in the long term it would just be inviting disaster.

But never let it be said I’m not an equal opportunity hater. The other story that got my attention was an indictment of three dozen Atlanta educators for cheating in standardized tests. While the indictment only goes back to 2005, I seriously doubt someone said “Hey, George Bush wouldn’t like this, but I’m sure President Obama would have no problem with it!” More importantly, President Obama wasn’t responsible for the landmark legislation that is the proximate cause for the cheating scandal: No Child Left Behind and the high-stakes testing it engendered.

It’s not just high-stakes for the kids; these teachers apparently had everything on the line, from bonuses to their jobs. Who did they hire as their motivational speaker, Alec Baldwin? I’m in no way condoning what they did, because the people who really got punished are the students. Either they didn’t get the education they were promised or they will always be haunted with the uncertainty of whether they really earned that grade.

But it comes back to incentives, and another phrase from economics, “unintended consequences”. Nobody intended for people to cheat, certainly not teachers and administrators. But the incentives were lined up for them to do just that, just as the incentives are lined up for the common complaint (which I most often hear from teachers) of having to “teach to the test”. Once again we have a case of a political agenda that completely ignores economic laws and (proven after the fact for years) reality in favor of “doing the right thing” and wishful thinking, only in this case we have a clear case of it biting us in the ass right in front of us that is bizarrely reminiscent of a Hollywood movie plot. Unfortunately in this case the underlying problem hasn’t been resolved; we’ve removed the symptom but not the cause.


Economic Recovery: Resolving the Housing Situation at Last


When I first planned to run for president, I had a great idea for what my platform would be: “somebody has to take it in the shorts.” It was simple, elegant, and caught the spirit of American politics in a nutshell, as well as providing the sort of common sense blueprint for recovery that we’ve so desperately needed. As we continue to hurtle toward fiscal ruin, particularly in a housing market that is either better, worse, or about the same (depending on who you listen to and what day of the week it is), I’d like to take a moment to expand on that admittedly simplistic notion of social justice and offer a better solution: “everybody has to take it in the shorts.”

So what does that mean exactly? Put simply, every American, regardless of your housing situation, needs to accept here and now that it’s time to take one for the team. Maybe you think you’ve already taken one for the team; maybe you think everybody else has gotten by and you haven’t gotten your free ride or your bail-out or your hand-up or what have you yet. Maybe you just think it’s time that somebody else who has more to spare steps up and gives for a change.

Well, I’ve got some bad news for you. This is America, and around here it doesn’t work like that. As my mother enjoyed telling me many times as a child (when she wasn’t threatening to sell me back to the Gypsies), life isn’t fair. It’s possible you’ve already taken a hit. Maybe you’re right and somebody else got a handout and you missed out. Almost certainly you’re right that there are people who have more than you do, but guess what? The fact that you’re able to read this at all means you have more than someone else, so that excuse carries not a lot of water. I’m not sure when in America we started glorifying the complainers instead of the doers (and I mean this on both sides of the political aisle), but it is a multi-generational thing, and it’s time we all stopped pointing fingers at someone else who should make the sacrifices (I include myself in that statement, don’t worry) and just accept the reality: if we’re going to get out of this, everybody has to take it in the shorts.

So here’s my plan. If you’re underwater on your mortgage or you can’t afford to pay your mortgage, you need to accept the fact that you will never get to cash out on your house. Your choices are stark: get help or lose the house, and option #2 doesn’t include paying for your retirement with the equity, so why should option #1? Here’s my solution: anyone can get a government-enforced write-down on their mortgage to the current estimated market value of their home, not what they borrowed. The lower valuation will be used to determine the new monthly payments, which should help to make things a bit easier for folks, as well as giving them a larger percentage of equity in their homes. But if you take the write-down, that’s exactly as much as you get to cash out for; if you ever sell the house for more than that, any excess sale price goes first to pay off the original mortgage holder and then the rest goes to Uncle Sam for his help so we can pay down the debt. Don’t like the terms? Don’t take the deal. The idea isn’t for it to make life easy or better for anyone, the idea is to keep people in their homes who would otherwise be homeless. Given a choice between the two, I doubt most people wouldn’t love the terms.

What banks get out of this is two things. First, they don’t have even more unsold foreclosure inventory just sitting around. Second, and here’s another thing the homeowners need to pay attention to, the homeowners agree to stay in the house for at least three years, or six years, or whatever term we can agree on as a society for the banks to feel like they at least got something out of the deal. In that time they will keep making those mortgage payments every month, on time every time, or they go out on the street, no questions asked, no second chances, because this was their second chance. Fool me once, shame on you, fool me twice, out in the cold. The banks also get something else for their part in this: a little reformation of character, which they could use right about now.

Now there’s one more group that gets to take it in the shorts here, and it’s one that rarely if ever gets mentioned, so I’m going to give a special shout out to them now. This would be anyone who didn’t buy a house when the market went crazy, or already had one. Anyone (and this includes my wife and myself) who saw the way things were going and said, “yeah… no,” because they didn’t think it was possible for housing values to go perpetually up and hey! looks like we were right, or for the folks who decades ago settled into a house and are getting punished for prudence now. Or hey, even the young folks coming up who never even had a chance to get into the market then and can’t get into the market now. For all of us, and for all the folks who did buy a house prudently and won’t need help, here’s what we get: not a god damn thing. If you own a house and don’t need help, you can sell it whenever you want for whatever you want. If you didn’t buy a house, you’re not locked into living in one place or having your credit rating suffer. You get exactly what you were promised, which is nothing at all.

Nobody wins, nobody loses. Everybody takes it in the shorts. Then we can finally put the whole thing behind us and move on. That’s my proposal, anyway.