Minimum Wage - We Can Do Better

The Federal Minimum wage law was a partisan issue from the day it was enacted in 1938.  Democrats in favor, Republican's opposed.  Politics has shaped the minimum wage more often than problem solving.  Dealing realistically with the minimum wage laws would be a great way to begin a new era where the good policy for the entire country comes before partisanship.

That the minimum wage laws have made the country a stronger and fairer country is beyond question.  But the minimum wage is far from a perfect policy solution.  Republicans have long objected to the minimum wage on the basis it destroys jobs.  They are correct, it does destroy entry level jobs, particularly in economically depressed areas.  But Republicans ignore the bigger picture that the minimum wage also reduces income inequality and in the process creates a stronger consumption base that builds a stronger economy and makes the country more financially solvent.

The basic problem the minimum wage seeks to solve is an unregulated free market pushes business to drive wages as low as possible to survive.  If one business in a market exploits workers they drastically reduce their costs of production.  Every other business in the market will be undercut on price and end up either cutting what they pay workers, or getting out of the market.  As this dynamic plays out across all industries in an economy it undermines the consumption that supports and grows our economy.

The formula enacted in 1938 addressed that problem by setting a floor on wages.  Summarizing the current law, the US Department of Labor website states:

"The minimum wage law (the FLSA) applies to employees of enterprises that have annual gross volume of sales or business done of at least $500,000. It also applies to employees of smaller firms if the employees are engaged in interstate commerce or in the production of goods for commerce..."

The second part of the current law is the problem - virtually any business is arguably "engaged in interstate commerce..."  The distinction drawn by the first test of gross business income of over $500,000 is undermined by the interstate commerce test.  Small local businesses that generate little revenue provide a disproportionate number of the entry level jobs in this country.  A high minimum wage makes hiring too expensive for these small businesses.   

We should learn from history.  The US and many European nations have followed this model that disregards the impact of a single minimum wage standard on small business for decades.  They have always been plagued with high unemployment rates.  The burden of unemployment always falls on the folks who need the most help.  A mandatory minimum wage that works for dynamic urban areas crushes entrepreneurship in not so dynamic urban pockets and more rural areas, while no minimum wages fosters market driven exploitation.  We need a minimum wage law that draws careful distinctions - and distinctions based on "interstate commerce" have failed. 

Facts about the minimum wage:

1.  Unemployment falls disproportionately on folks under the age of 34, and over the age of 54.  In particular people under the age of 24 have consistently high unemployment rates.  Within those age parameters people of color are the most likely to be unemployed. 

2.  64% of the new jobs in the United States come from small business.   In the 81 years between the enactment of the minimum wage in 1939 and 2019 the country averaged an unemployment rate of  5.8% of the working population.  That 5.8% unemployment figure represents literally millions of people who cannot find a job.  But that 5.8% figure is misleadingly low about the true impact of minimum wage laws. Really low unemployment years bring the average down.  In the last 81 years really low unemployment rates have usually occurred during wars when a large part of the young male population were in the military - substantially reducing unemployment among the demographic most likely to be unemployed.  

In the 10 years from 1961 to 1970 the minimum wage was raised 4 times and we experienced a prolonged period of rapid economic growth (without a subsequent financial collapse).  Purchasing power of the minimum wage reached its historical peak in 1968 when the minimum wage was 52% of the average wage.  For that period the average unemployment rate was 4.6%. That is still a lot of unemployed folks but that figure is deceptively low.  Many millions of the young men at highest risk of being unemployed were not in the job market - they were "employed" in the military as we rotated half a million soldiers in and out of Vietnam while maintaining forces in Europe, Korea and other locations around the world.

In the 10 years from 1971 to 1980 the Vietnam war wound down and the military downsized.  The minimum wage was only raised once while the unemployment rate averaged 6.49%.   From 1981 to 2000 as we moved to an a smaller, all volunteer military unemployment averaged 6.1%.

Historically, adjusting for wars and recessions, rising purchasing power from the minimum wage correlates directly with higher unemployment.

How to improve the minimum wage law - A conceptually better way to address the problem of market driven exploitation would be to link how much the owners and managers get paid to how much their employee's get paid.  That will take exploitation out of the marketplace while also enable fledgling business where no one is making a lot of money to bring in help to grow the business for everyone.  The kind of business that provides most of the entry level jobs for young people.

How do we draw the necessary distinctions?  Some ideas include:

Develop Tax policies that make it advantageous in the marketplace to pay your employees well, by setting up tax penalties if the managers make some specified amount more the the lowest paid workers. 

A distinction based on the form of business ownership could also be simple partial solution.  Make the minimum wage law presumptively applicable to any business organized as a limited liability entity as a part of the price of limited liability.  But businesses that operate as a sole proprietorship or partnership, where the owners are directly liable for the business losses, could be exempt from the minimum wage subject to some yearly income test.  

We are a country built on the notion we offer everyone the opportunity to choose their own path.  A one size applies to all minimum wage can preclude entrepreneurial folks trying to create their own path from taking on entry level employees.  A small business without big profit margins that might employ low skill entry level workers to grow into a bigger business can't afford the same wage a big established organization can afford.  The result is some people who would like to be employed are not.  That should be unacceptable.

We can do better.

Problems in Government: Social Security and Pension Plans

 In 1935 the Federal government created the Social Security system to address a chronic problem in society - how to take care of people who cannot support themselves through age or disability.

The problem had been an issue long before 1935, so many local and state governments, and some businesses had begun seeking to address the problem by creating pensions systems for their workers.  The concept that dominated was a defined benefit plan - if you worked a certain number of years you would be entitled to a amount of money each month after you reached retirement age defined as a percentage of your final salary.  It relies on complex  formula's to project how much money has to be set aside each year to have a pot big enough to meet retirement obligations.

Social Security as created in 1935 was a work around to supplement defined benefit plans already in place.

In the century since the defined benefit plan became popular it's two glaring deficiencies have long been apparent.  

The first problem is the model relies on the managers correctly projecting how much per year they need to set aside to provide a big enough pot for retired employees.  Management who have other business priorities, like finding money for raises for themselves, are incentivized to err on the side of putting too little aside.  Rather than what would be prudent they assume the best case scenario.  Assuming a 7% annual return has been common even during recessionary times.  The result has been pension plans often verge on insolvency during stock market downturns.

The second problem is defined benefit plans usually contain "vesting" requirements - money set aside for each employee did not actually become the employee's money until the employee had worked a specified number of years.  This was a considerable benefit to the organizations.  It allowed them to dangle the carrot of a pension to entice potential employees, but they could rely on a certain number of the employees leaving before their retirement vested, so the contributions in the leaving employee's account went back in the pot and reduced the overall contributions the organization had to make - in effect long term employees were subsidized by of short term employees.

The result has been chronically underfunded pensions, and workers who often accumulate little or no pension as they move through life.  It also tended to keep people at jobs they no longer liked in order to become vested.  Finally it is a hurdle for potential entrepreneur's needing a little financial security before striking out on their own to create new business.

Congress recognized the problems decades ago and responded with regulations aimed at private business. Private business, in response, moved away from defined benefit plans to 401K's, employee investment programs created by Congress that effectively funnel money to Wall Street - not only a huge money maker for Wall Street but also a huge factor in the chronic overvaluation of stock markets.  

Government and church related non-profits are still unregulated and continue to imposed vesting requirements that may require years of working service before the worker is entitled to their money.

The Congressional solution to the insolvency issue was a program aimed at funding bankrupt retirement plans,  But with the National debt currently exceeding the national income the ability of the Federal government to bail out underfunded pensions is limited, particularly given that the reason many retirement funds currently appear solvent is because of a stock market chronically inflated by low interest rates.  A market crash could devastate retirement plans, which could crush consumption.  

It is time to start redesigning Social Security law around what's good for workers rather than relying on the poorly aligned incentives of private pensions and 401K's herding retirement money to Wall Street.  A big step forward would be to give workers the option of having retirement contributions directed into the social security system in their name, or rather than supplementing their social security account, use it to fund a business, buy an asset or otherwise take control of their retirement pot without a complex web of restrictions. 

Trump's Tax Cuts Add $18,600 in Debt for each Taxpayer per Year

A social media post comparing the Biden plan with the Trump tax cuts notes a lot of middle income families paid somewhat less under the Trump plan compared to the Obama years.  I presume the goal of the comparison is to help in figuring out for whom to vote. The posting computed how much taxes a regular family would pay over a couple years before and after the Trump tax cuts. 

The post neglected to consider the National debt. Considering the National Debt exposes how the Trump tax cuts were crassly aimed at buying votes now with total disregard for future generations.  

The bottom line:  For each year the Trump Tax cuts have been in effect $18,600 in debt has been added per taxpayer.  Here is the data (and a website to help with your own computations - don't take my word for it).

In 2017 (the latest year for which the internet has data) around 144 million people filed Federal Income tax returns.  If you divide the National Debt by the total number of taxpayers here is what you get. 

The current National debt is approaching $27 Trillion.  (https://www.usdebtclock.org/ ).  When the Trump Tax cuts were enacted in 2017 the debt was $20 trillion.  At $20 Trillion the share of the debt for each of the 144 million taxpayers was about $158,000.  With the debt currently at $27 trillion each taxpayers share of the debt has increased to about $215,000.

So in the three years the Trump tax cuts have added $56,000  to each taxpayers share of the debt, about $18,600 per year, vastly more than the short term tax savings realized by any hypothetical middle income taxpaying family.  

This isn't just about Donald Trump, he is just playing out of the Republican party playbook.  Here are some historical facts:  

Between 1933 and 1981 the wealthiest taxpayers paid an average of 70% tax on that portion of their yearly income that was far beyond what the average taxpayer made.  In those years GDP growth averaged nearly 3% per year, and in 1981 the National Debt was the same as it was in 1933 - no net growth, even after funding WW II, the Korean War and the Vietnam War and sending folks to the Moon.  This period also saw middle class incomes peak in the decade before Reagan.  

In 1981 when Ronald Reagan became President the National debt stood at about 30% of GDP.  Keeping taxes low on the wealthy was a top priority for Reagan and every Republican since, as Republican's have dominated Congress and government policy since Reagan.  The National debt has increased every year while GDP growth has been mediocre and middle class buying power has deteriorated. 

The net result is since Reagan the National Debt, as a percentage of GDP, has grown faster than GDP.  As a country we have gone backwards in economic development. 

Republican tax cuts for the wealthy (trickle down economics) are an abject failure.  Globalization hid the extent of the failure, the shrinking wealth of the middle class in the United States was offset by big corporations selling stuff to people all over the world so GDP was at least mediocre.  Wall Street did great, Main Street did badly.  

Forget Donald Trump and all his...quirks.  To get this country back on a sustainable fiscal path voters need to realize the problem has been and is Republican economics.

P.S. - Don't be confused by folks talking about a lower National Debt figures.  About 20 years ago Republicans who wanted to finance more tax cuts borrowed money from the Social Security Trust Fund.  The debt to the Social Security Trust Fund is often excluded (since it is the Fed owing money to the Feds) and only debt owed to the rest of the world is counted as the "National Debt".  Ironic in that the Social Security Trust fund is working folks retirement money - by borrowing from the Social Security Trust Fund Republicans managed to put workers on the hook for paying the interest on their own retirement funds.

Will the Protests Help or Hurt the Racial Justice Cause?

Been engaged in a long discussion on Facebook with various members of younger generation who basically excuse all the violence over George Floyds death for various historical and emotional reasons.  I tried to make the point if they want to make progress on racial justice they have to distinguish between non-violent protest and violent protest.  Didn't feel like I made much progress so decided to do some research.

Since the 2014 events in Ferguson Missouri seemed to offer a recent similar sequence of events, I decided to see what happened in the 2016 Presidential election.  Interestingly, in an election that saw very low voter turnout in many states, in Missouri the turnout was unusually high, around 70%.

Then the question becomes who did the Ferguson events motivate to vote.

In the 2016 election in Missouri Hillary Clinton got the lowest vote percentage (just under 38%) for a Democrat since 1972.   Donald Trump got 56.4%.

It seems to me to suggest that the outrage at the violence sent more people to the polls than outrage at the original shooting.  

Be happy if someone can find some other statistics to explain this result. 

Why Are Republicans so Prone to Conspiracy Theories?

During Obama's era there were always lots of conspiracy theories floating about, like the one that Obama was born in Africa that Trump promoted for years.  But it used to be the conspiracy theories came from outside government.  Since Donald Trump arrived in the White House the conspiracy theories seem to often begin in the White House.

I ask myself - why are Republicans currently so prone to conspiracy theories.  Perhaps some of it is just calculated political expediency - such as the theory Michael Flynn was somehow set up by the Obama administration working in collusion with the FBI.

But then I started wondering if it could be because a some Republicans think that in ideological battles the ends justify means.  So they cut corners and cheat to win.  And since they do it they suspect other people must also be doing it - hence they always look for hidden conspiracies.

That led me to a really interesting wikipedia website that lists all the federal officers convicted of crimes back through history:

https://en.wikipedia.org/wiki/List_of_American_federal_politicians_convicted_of_crimes

I did some computations starting from 2009. 

Six of the folks listed on the Wikipedia list I classified as non-political crimes so did not include in the below computation - drugs or sex/relationship items.  They include 1 Independant, 1 Democrat and 4 Republicans - most the Republicans were Judges.

During the Obama years members of Congress convicted of politically related crimes were pretty evenly split, 5 Republicans and 4 Democrats.  During the Trump years the only listed Democrat convicted is, ironically, Michael Flynn.  Three Republican members of Congress have been convicted, but no Democrats.  (As a passing note of interest we also now have another Republican member of Congress under investigation for insider trading for allegedly using information from Congressional hearings to decide to sell all his stock right before the crash.)

Including all the convictions on the list we have 1 Independent, 7 Democrats and 10 Republicans.

I am certainly not arguing this proves my theory, just throwing it out there because is interesting.  Particularly that Michael Flynn was evidently a registered Democrat?

Climate Change Hysterics and Deniers -Who to Support

The scientific notion burning of fossil fuels is accelerating global temperatures at an extraordinary rate that will cause massive disruption in our climate and life on this earth is, even to my unscientific mind, hugely complicated.  Some are absolutely convinced the theory is true, others are equally convinced it is not.  Our vote will determine which direction policy proceeds.

Who are we normal folk to believe as we decide how to vote?  

Is Burning Fossil Fuels Causing Unprecedented Global Warming?

The fact that the majority of the scientific establishment supports the theory burning fossil fuels is contributing CO2 to the atmosphere at a rate that will change the climate rapidly is compelling.  But history has demonstrated the scientific establishment sometimes is prone to groupthink that hinders advancing knowledge.  You become a member of the establishment by building strong credentials, and often building strong credentials may be accomplished by adopting the theories of your mentors rather than challenging them.  So we cannot blindly accept majority scientific views.

On the other hand the news reports of polar ice caps rapidly disintegrating, small pacific islands preparing to move their entire populations away because of rising sea levels, and New York city subways being filled with water after Hurricane Sandy, all seem consistent with the theory.

But the "Climate Deniers", folks who poo poo the theory, point out the earths climate has always been changing, getting warmer, then colder.   A true fact.  They argue what is happening is simply a natural process unrelated to burning fossil fuels.

So how do I make a decision if choosing for vote for one position or the other?  

This problem is too complex to confidently predict the outcome.  It would seem the best course is to be conservative.  Look at the possible outcomes and choose the least catastrophic if we pursue the wrong course.

What happens if the climate deniers who poo poo the notion burning fossil fuels is overheating the planet, win the political argument so we continue relying on fossil fuels for energy?   If down the road it becomes obvious the climate deniers were wrong the planet will be much hotter, the sea levels will have risen more rapidly, the climate in different parts of the planet will have changed to a degree it causes massive population dislocation and could undermine food production but the process will be so accelerated we will not be able to turn it around and change direction.

What happens if the folks who believe we need to stop overheating the planet win the argument and in the end are wrong?  We will end up with a climate much more similar to what currently exist.  We will pay more for energy in the meantime, and will need to be pretty clever about finding energy sources to replace fossil fuels.  It will be an economic inconvenience, but it will reduce air pollution worldwide.  It may slow development in the poorest countries for some period of time, but it may not as the poorest countries are finding ways to bypass old technology with new technology.  It will probably not be a planet wide disaster.

Climate change is a vastly complex topic, but politics has turned it into a binary choice   The world is not binary - both sides are making educated guesses.  The consequences of being wrong seem much more dire if we chose the climate denier approach. We should be conservative and avoid the possibility of a more catastrophic outcome. 




       

The "Deep State" - Reminds Me of a Scary Story That You Tell Around the Campfire.

You never hear Democrats talking about the "Deep State."  It is always Republicans. I was thinking about how odd that is given the political history of our country the last 40 years.

Facts:

Republicans have controlled both the Presidency and Congress 8 years, Democrats 4.

We have had Republican Presidents for 24 years compared to 16 years of Democratic Presidents.

Republicans have controlled both houses of Congress 18 years compared to 10 years by Democrats.

Republican Presidents have worked with 1 house of Congress controlled by Republicans 6 years.  Democratic Presidents have worked with 1 house of Congress controlled by Democrats 4 years .

By every measure Republicans have dominated government for the last 40 years.  It seems if a deep state exists I have to conclude they have either created it or have been incompetent to deal with it. 

Here is a link to an earlier blog that speculated about why Republicans speak ominously of the "deep state" so often.

https://motrvoter.blogspot.com/2019/11/the-deep-state.html