Browsing the blog archives for December, 2013.

The Impending Budget Deal

Uncategorized

I took some time to get all the facts and let things play out before commenting on the Ryan-Murray budget deal. With the academic semester coming to a close at most colleges and universities, it’s time to issue a grade here as well.

ECONOMICS: F. There’s no need to discuss all of the details because this deal does nothing to cut spending. Rand Paul summed it up appropriately when he commented, “I’ll gladly pay you Tuesday for a hamburger today.” Spending cuts are only meaningful if they are real cuts (not reductions in proposed increases) and if they occur in the present. Real spending cuts are essential to any negotiated deal. Paul Ryan is correct when he bemoans the stream of continuing resolutions that have comprised a de facto budget in recent years, but this is largely Obama’s fault and is no reason to Republicans to surrender.

EFFORT: F. The Republican leadership clearly wants to cut a deal and go home.

POLITICS: F. This was the most difficult part to assess early on, as this deal is primarily about politics. The Republicans (once again) are giving up their most powerful card–control of the purse strings in Congress–to avoid potential backlash from another “shutdown.” Moderate Republicans seem happy to run against the Obamacare rollout fiasco next November, but the midterms are almost 11 months away. Besides, the real problem with Obamacare is the content, not the administration. Governments are generally inept at such tasks, but Obamacare’s troubles are due to design flaws that were identified long before the President signed the bill into law.

When I heard Boehner and Rove trashing FreedomWorks and the tea party, everything became clear. The old-line Republicans are in effect joining the Democrats in an effort to marginalize the libertarian wing of the Republican party as obstructionists. The idea is to thwart primary challengers with strong constitutional and libertarian bents, and then re-court their followers when the general election rolls around. Even if it works and we get a few more Republicans in the House and Senate, little if any will change. I’m not interested in party numbers, but in the direction of the country.

OVERALL: F. Paul Ryan is not all bad, but his desire to get a deal at any cost is not good for the country.

I understand why some view the deal as the lesser of evils, but if it is, then we need to reshuffle the deck. We’ll have that opportunity in 2014.

6 Comments

Another push to raise the minimum wage…

Uncategorized

On Thursday, fast food workers in over 100 US cities will walk off the job to demand an increase in the minimum wage to $15. The current rate is $7.25 and President Obama has already committed to backing a Senate measure to raise it to $10.10. The walkout is supposed to create sympathy for minimum wage earners, but it’s time for some straight talk about the minimum wage and the fast food industry.

Fast food jobs are often referred to as “entry level” because they represent a starting point for those lacking skills, good work habits and experience. They only become long term for those who fail to develop the skills, job habits, or ambition necessary to move up or move on. The idea that unskilled workers should be able to raise a family on minimum wage is mere socialist rhetoric. In our economy, most fast food workers are not worth $15 an hour, which is they aren’t already paid that now.

Proponents of a higher minimum wage fail to understand that someone must pay for it, and that someone always ends up to be┬áthe customer. In fact, an increase in wages at fast food restaurants will have little if any impact on profits. When the mandated cost of labor rises, companies respond by using less of it whenever possible and raising prices to make up the difference. This means there would be fewer entry-level jobs available for unemployed Americans who desperately need work, quite possibly fewer hours–perhaps less than 30 per week–for those who are able to retain their jobs at the higher hourly rate, and higher prices for the food we purchase. As economists say, there’s no such thing as a free lunch, not even at a fast food restaurant.

There’s also a misconception about who earns minimum wage. According to the BLS, only 1.6 million of the 75.3 hourly workers in the US in 2012 were paid the minimum wage. But labor leaders know than an increase in the minimum wage would have a ripple effect to other workers as well. Some union contracts even mandate wage increases that are tied to changes in the minimum wage, so an increase in the bottom rate will push other rates up as well.

In the end, raising the minimum wage is bad economic policy and ultimately hurts those its proponents claim to be helping. It not only gives employers an incentive to hire fewer workers and cut hours, but also promotes an entitlement mentality among those entering or about to enter the work force. Our economy needs lots of burger-flipping jobs at market wages for those who need a place to start. Mandating that companies overpay these workers eliminates the opportunities these workers so desperately need.

12 Comments