Browsing the blog archives for June, 2012.

The Supreme Court on Obamacare

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Much will be written about the Supreme Court’s disappointing decision in the next few days. I’ll just make three points, one about the program, one about the philosophy underpinning it, and one about politics:

PROGRAM: The mandate requiring consumers to purchase their own insurance was necessary to fund the other parts of the Obamacare package. An influx of premiums (or tax penalties) from those who won’t likely use the system very much will counter some of the additional expenses. But remember, the mandate has always been a compromise position for those on the left anyway. They really prefer a single-payer system and total control, but agreed to the mandate (and some other back-room deals) to pass what they could. They’re not finished. Expect them to move more aggressively toward a single-payer system.

PHILOSOPHY: The health care debate is about redistribution of income, not about access to care. Obamacare cannot deliver what it promises without both rationing and taxing the middle and upper classes at a higher level. The money just isn’t there without wealth redistribution. The access problem affects only a small percentage of Americans and can be addressed with other measures.

POLITICS: Congress can change the law if it wishes, but without a 2/3 majority this can only happen with the blessing of the president . Romney has been running as an anti-Obama big tent candidate. He has vowed to repeal Obamacare but has avoided specifics. This decision gives Romney a golden opportunity to define his candidacy if he chooses to pursue it. His prospects for success in November hang in the balance.

The battle is far from over, but we need leadership. We’ll see if Romney is up to the challenge.

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Opportunists vs. Capitalists

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Former Atena CEO Ron Williams published an op ed in June 18’s Wall Street Journal explaining why he no longer supports the health insurance mandate. Williams championed Obamacare when it was originally proposed, but now he says he’s having second thoughts. Some on the right are touting this as evidence of a momentum shift away from the individual mandate, but I’m not buying his explanation.

Williams, like many other executives, supported Obama’s healthcare initiatives when doing so was politically expedient. Few CEOs had the courage to oppose the administration early on, some in fear of a Chicago-style reprisal and others willing to cut backroom deals. Companies like Aetna were told to work with Obama or else. Williams sold his soul and cut his losses back then, but has modified his position now that the political winds have shifted direction. His unwillingness to stand on principle is the reason why so many conservatives and libertarians are becoming disgusted with big business.

In the piece, Williams claims that he has “long been an advocate of getting and keeping every American covered. As a society,” he continues, “we have a moral obligation to ensure everyone has access to affordable health care.” Knowing that “access to affordable health care” is akin to taxpayer subsidies, I wonder why Williams places this type of moral obligation on the collective. If we accept that our society has a moral obligation to provide the poor with affordable healthcare, then we must defend the morality of confiscating one person’s personal property to meet the “needs” of another. For this reason, the notion of moral obligations must be discussed as individual considerations, not societal ones.

Williams now claims that after studying the issue, “it became clear to [him] that the legislation raises serious constitutional concerns.” This has been obvious from the beginning. Nonetheless, he is now campaigning for “bipartisan solutions that work for all Americans” regardless of how the Supreme Court rules. Bipartisan government intervention is not the solution. We need less involvement, not more.

Perhaps Williams is still campaigning for the interests of Aetna—I don’t know. He claims to have had a genuine change of position, but the facts suggest otherwise. Ron Williams is a smart man. He understood why the Affordable Care Act was both unconstitutional and bad for America when it was originally proposed. But Williams is an opportunist, not a capitalist. He stands for political expediency, not principle. Executives like Ron Williams corrupt the very system they claim to support. He owes us an apology, not an editorial calling for Obamacare-Lite.

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The Folly of the Minimum Wage

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Calls to increase the minimum wage have returned. This time Jessie Jackson, Jr. claims to be the compassionate one, proposing an immediate increase from $7.25 to $10 per hour.

http://www.nytimes.com/2012/06/07/business/bill-pushes-for-increase-in-wages.html

The fact that a nice round number like $10 is supposed to be the perfect minimum wage tells us that this proposal is not the result of any sophisticated economic analysis. There are other reasons with his proposal as well.

In a free market, wages are driven by the value individuals provide to employers. Socialists assume that wage rates are predetermined by capitalists who hold all of the cards, “forcing” workers to accept employment at rates below their real value and thereby enriching business owners unfairly. This is total nonsense, however, as illustrated by the following example.

Suppose workers at McDonald’s are really worth $10 an hour–Jackson’s proposed minimum wage–but the company only pays the current minimum wage, $7.25. This gap in value will lead better workers to seek employment elsewhere. Other companies would welcome the opportunity to hire away McDonald’s best workers at $8 or $9, raising the market wage until it almost reaches the real value. This process occurs daily in our economy. Put another way, companies just can’t get away with hiring working at rates below their real value for very long. This leads us to the flaw in Jackson’s logic.

If workers earn a wage close to their real value to employers, then an increase in the minimum wage would only mandate a raise to those whose must now be paid more than their real value. If a worker adds $8.50 worth of value to an employer’s business and federal law mandates that he be paid $10, the employer must either hire him at a $1.50 loss or let him go. A fast food restaurant like McDonald’s will always need some workers regardless of the minimum wage, so those retained might actually benefit for a while. They will be required to be more productive, however, while many of their co-workers will be left unemployed.

Higher wages also translate into higher prices, so we not only get higher unemployment but price inflation as well. To add insult to injury, unskilled workers are hit the hardest because their value to employers is likely to be less than the minimum wage. This is part of the reason why unemployment is currently high. Raising the minimum wage would only add fuel to the fire.

There is no economic justification for a minimum wage in the first place. Employers should be free to hire workers at a wage level agreed to by both parties. This means that workers who are genuinely underpaid can seek better options elsewhere. It’s unfair to deprive an unskilled worker of an opportunity to take a job and improve his skills simply because his market value is below the minimum wage.

Back to my original point…there are only two reasons why someone who propose an increase in the minimum wage, politics or economic ignorance. You are free to decide which of these applies to Jackson.

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The Paycheck Fairness Ruse

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The latest piece of proposed government intrusion into American business is the so-called Paycheck Fairness Act. The problem this bill purports to solve is the alleged discrepancy between the wages of men and women in the U.S. workforce. Across the board, women earn 77% of what men earn in “similar jobs.” Based on this statistic–it’s questionable but I don’t debate it here–we are supposed to conclude that evil corporations are conspiring to discriminate against women.

The flaws in this argument are clear. First, it begins with the Marxian premise that workers have not choice but to accept any wage they are offered. However, the employment contract works both ways. Individuals who aren’t offered sufficient wages are free to seek employment elsewhere.

Second, if women are willing to work for 23% less than men, then savvy companies would hire more women until the disparity disappeared. If the left is correct and evil corporations are only interested in profits, then why wouldn’t they hire only women instead of overpaying men to do the same work?

Finally, the 77% statistic assumes that all employment and employees are equal. As a group, women are more likely to leave the workforce for family considerations and reenter the job market later in their lives. Likewise, men are more likely to pursue employment that requires longer hours, overnight travel, and other sacrifices in exchange for additional compensation. Put another way, although not true in every individual case, women tend to prefer different kinds of jobs and are willing to accept lower wages in exchange for more desirable working conditions as part of the package. Economist Thomas Sowell has crunched the numbers and dispels the gender-pay myth brilliantly, so I’ll refer interested readers who seek additional details to his explanation:

http://lattenomics.wordpress.com/2008/05/07/do-women-really-get-paid-less-than-men/

Of course, some individuals discriminate inappropriately for a variety or reasons; this will always be the case. But if there isn’t a widespread gender-pay problem–the leftist might ask–then what would be wrong with passing the Paycheck Fairness Act anyway? The answer is quite simple. This piece of legislation requires employers to prove that any gender differences in pay are based on non-gender factors. Requiring firms to prove that they are not discriminating not only violates the Constitutional assumption of innocence but also needlessly increases paperwork and litigation. And we wonder why more and more firms seem averse to hiring anyone these days.

This bill, like previous “equal pay” proposals, is mostly political, with its supporters hoping to brand Romney and Republicans as anti-women if they don’t support it. I haven’t heard Romney clarify his position yet, which it unfortunate. This one should be a no-brainer.

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