Browsing the blog archives for April, 2015.

The student loan crisis & the upcoming election

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Currently, the federal government holds most of the U.S. student loan debt, almost $1 trillion. This is a crisis.

Graduates—especially those without jobs—are clamoring for relief. With the feds in control of the loans, it’s almost a political certainty that a substantial “plan” to aid troubled students will pop up around election time. Some of the left are even calling for massive forgiveness, but a more modest approach could include partial forgiveness for those who “serve society” in the way Washington sees fit. Teachers, nurses, social workers, and government employees could benefit at taxpayer expense under such a plan, while those pursuing careers in business or engineering would have to pay their own freight.

This is a left-wing dream. Simply mine the data of students who hold the debt and identify the groups most likely to vote for candidate X if they get some degree of debt forgiveness. Then craft a plan that offers forgiveness to be paid for—of course—with a tax of some sort on the “rich.” Market it with slogans that highlight the importance of education. A plan like this is a sure winner with many millenials and swing voters. Indeed, the ability to play politics with personal debt decisions is why the federal government should not be in the student loan business in the first place.

It should be needless to say, but there should be no student loan debt forgiveness of any kind. Contracts should be honored, and the federal government should not be seen as a vehicle for abolishing a contract when enough voters change their minds after the fact. Why should taxpayers have to shoulder the burden of students who received college loans? Moreover, how is this fair to students who tried to act responsibly by attending lower cost colleges or working more to pay a larger chunk of their own tuition?

If you want more details on this problem, see Noah Smith’s post on Bloomberg:

www.bloombergview.com/articles/2015-04-17/washington-may-not-want-to-get-out-of-student-debt

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McDonald’s Joins the Fray

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Another major corporation has joined Wal-Mart, Target and others in hiking its wages. Effective July 1, employees at non-franchised McDonald’s will receive hourly wages at least $1 above the local minimum wage. While this increase will only effect those not already earning $1 more than the minimum and it only affects those at company-owned stores—about 10% of all stores—it reflects a rising sentiment that increasing wages can be a good business decision. Of course, it’s not surprising that critics are continuing to clamor for more:

http://money.cnn.com/2015/04/02/news/companies/mcdonalds-workers-pay/index.html

The unprecedented changes we’re seeing in companies like Wal-Mart and McDonald’s is evidence that markets are capable to driving wages up. With Republican majorities in the House and Senate, there is little threat of a higher minimum wage at the national level. Yet, companies are evaluating shifts in the labor market and making their own decisions to pay more. Government action was not required, which brings me to deeper point.

Leftists argue that when left alone, companies will always drive wages down to the lowest possible level. In fact, I heard one commentator argue, “corporate America needs to learn that hiring people at rock bottom wages isn’t the best way to run a business.” She assumes—like Marx—that workers are powerless and have no choice in the matter. Big companies set the wages and benefits, and the rest of us take it or leave it. This is demonstrably false; just consider the high turnover rates in fast-food. Moreover, with few exceptions, corporate America already understands employment realities quite well.

From a cost standpoint, hiring the cheapest workers you can find may not be the most economical way to run your business. Better workers—even in unskilled categories—are more likely to show up on time, are less likely to quit, and tend to make fewer mistakes on the job. Paying a few dollars per hour more for these workers is often worth the investment. Savvy employers try to find the sweet spot where they reward employees just enough to retain the good ones.

So why aren’t more fast-food restaurants paying more in order to get better cooks and cashiers? Some are, but the truth is that promising fast-food employees are either promoted or they eventually leave the industry for better job opportunities elsewhere. Most talented workers see burger flipping as a part-time or a temporary job while they build a track record or train for something better. In this way, companies like McDonald’s are providing sorely needed training to entry-level workers.

Companies like McDonald’s shouldn’t be castigated because they don’t offer middle class wages. They should be celebrated because they provide initial job training and experience.

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