The first 100 hours agenda

[Sauron]

Sounds good!

Pelosi Says She Would Drain GOP 'Swamp'

By DAVID ESPO
The Associated Press
Friday, October 6, 2006; 1:58 AM

WASHINGTON -- Franklin Roosevelt had his first hundred days.

House Democratic leader Nancy Pelosi is thinking 100 hours, time enough, she says, to begin to "drain the swamp" after more than a decade of Republican rule.

As in the first 100 hours the House meets after Democrats _ in her fondest wish _ win control in the Nov. 7 midterm elections and Pelosi takes the gavel as the first Madam Speaker in history.

Day One: Put new rules in place to "break the link between lobbyists and legislation."

Day Two: Enact all the recommendations made by the commission that investigated the terrorist attacks of Sept. 11, 2001.

Time remaining until 100 hours: Raise the minimum wage to $7.25 an hour, maybe in one step. Cut the interest rate on student loans in half. Allow the government to negotiate directly with the pharmaceutical companies for lower drug prices for Medicare patients.

Broaden the types of stem cell research allowed with federal funds _ "I hope with a veto-proof majority," she added in an Associated Press interview Thursday.

All the days after that: "Pay as you go," meaning no increasing the deficit, whether the issue is middle class tax relief, health care or some other priority.

To do that, she said, Bush-era tax cuts would have to be rolled back for those above "a certain level." She mentioned annual incomes of $250,000 or $300,000 a year and higher, and said tax rates for those individuals might revert to those of the Clinton era. Details will have to be worked out, she emphasized.

"We believe in the marketplace," Pelosi said of Democrats, then drew a contrast with Republicans. "They have only rewarded wealth, not work."

[California Tanker]

Two weeks? You're slipping.

Lobbyist Plan: No objection
9/11 plan: No particular objection, though I'm not convinced by the NCTC and NID ideas. Don't we have enough government agencies and functionaries already?
Minimum Wage Plan: Don't like it.
Student Loan Reductions. Like it.
Medicare plan: I think I like it, though I'm not up to speed on the fine details.
Stem Cell plan. Good.
"Pay as you go." Not so keen on it. Who amongst us has never increased their debt level to improve their situation? Unless it's a limit based on %GDP instead of absolute numbers, in which case it's not far off what we've got right now in practise anyway.
Tax hikes: Probably depends on the final figures. I wouldn't give blanket support.

Oh, and she is on record as having said she also intends to introduce anti-firearm legislation, to include reinstating the Assault Weapon Ban, which is a definite non-approval in my case.

NTM

[Adam]

Originally Posted by Sauron

Friday, October 6, 2006; 1:58 AM

Is time travel one of the Dark Lord's powers now?

Day One: Put new rules in place to "break the link between lobbyists and legislation."

A-fucking-men. I am a bit disturbed by the recent trend for K street to dump money into Democratic campaigns and hire Democrats, and I'm going to be disgusted if Pelosi can't convince her party to make meaningful change regarding lobbyists.

Day Two: Enact all the recommendations made by the commission that investigated the terrorist attacks of Sept. 11, 2001.

Excellent.

Raise the minimum wage to $7.25 an hour, maybe in one step.

About damn time. It's been sitting stagnant and not staying level with inflation through years of Republicna rule.

Cut the interest rate on student loans in half.

Hell yes, even though it's gonna cut into the value of my options. I work for a large student loan company some people may have heard of. It's highway fuckin' robbery since we broke away from being a government sponsored organization. The government still assumes a large portion of our risk, but we keep all the profit. I've sat in company meetings and listened to officers literally laugh about how absolutely wonderful it is that tuition is rising and wages stagnating. I've also sat in company meetings where I was told that I needed to vote Republican.

Allow the government to negotiate directly with the pharmaceutical companies for lower drug prices for Medicare patients.

Yes, please.

Broaden the types of stem cell research allowed with federal funds

I heart you Nancy.

All the days after that: "Pay as you go," meaning no increasing the deficit, whether the issue is middle class tax relief, health care or some other priority.

While there are certain situations in which deficit spending is unavoidable or desireable, I agree with this in general, especially as an antidote to the out of control spending beyond our means we've seen for the last 6 years.

To do that, she said, Bush-era tax cuts would have to be rolled back for those above "a certain level." She mentioned annual incomes of $250,000 or $300,000 a year and higher, and said tax rates for those individuals might revert to those of the Clinton era. Details will have to be worked out, she emphasized.

Fine by me.

"We believe in the marketplace," Pelosi said of Democrats, then drew a contrast with Republicans. "They have only rewarded wealth, not work."

I don't understand why this is not a major Democratic slogan.

[California Tanker]

Day One: Put new rules in place to "break the link between lobbyists and legislation."

Interesting article from Barron's. Basically, it says 'follow the money'

http://online.barrons.com/public/art..._free_features

Snips.

....

Our analysis -- based on a race-by-race examination of campaign-finance data -- suggests that the GOP will hang on to both chambers, at least nominally. We expect the Republican majority in the House to fall by eight seats, to 224 of the chamber's 435. At the very worst, our analysis suggests, the party's loss could be as large as 14 seats, leaving a one-seat majority. But that is still a far cry from the 20-seat loss some are predicting. In the Senate, with 100 seats, we see the GOP winding up with 52, down three

We studied every single race -- all 435 House seats and 33 in the Senate -- and based our predictions about the outcome in almost every race on which candidate had the largest campaign war chest, a sign of superior grass-roots support. We ignore the polls. Thus, our conclusions about individual races often differ from the conventional wisdom. Pollsters, for instance, have upstate New York Republican Rep. Tom Reynolds trailing Democratic challenger Jack Davis, who owns a manufacturing plant. But Reynolds raised $3.3 million in campaign contributions versus $1.6 million for Davis, so we score him the winner.

...

Is our method reliable? It certainly has been in the past. Using it in the 2002 and 2004 congressional races, we bucked conventional wisdom and correctly predicted GOP gains both years. Look at House races back to 1972 and you'll find the candidate with the most money has won about 93% of the time. And that's closer to 98% in more recent years, according to the Center for Responsive Politics. Polls can be far less reliable. Remember, they all but declared John Kerry president on Election Day 2004.

I take it I'm not the only one who is a little irked at the whole concept of a 'war chest'?

NTM

[Adam]

I read that yesterday and was thinking that this should be an interesting test of the Freakonomics guy's* hypothesis that money spent on a campaign is not a reliable indicator of who's going to win it.

Remember, they all but declared John Kerry president on Election Day 2004.

I've seen a couple assertions recently that 'conventional wisdom' was behind Kerry in 2004, but I don't recall there being any overwhelmingly accepted notion that he was going to become the next President. Sure, 'they' all but declared him the winner on election day itself, but that was the result of exit polling, which normally is a pretty reliable indicator.

* - Yes, I'm too lazy to either look the book up on Amazon or Library Thing or even just walk into the bedroom and check the spine to get the author's name.

[Sauron]

Originally Posted by California Tanker

Interesting article from Barron's. Basically, it says 'follow the money'

http://online.barrons.com/public/art..._free_features

Snips.
[i]
....

Gawd I hate stupid people. There are reasons why economists shouldn't dabble in politics. (Stupid people = the author of this article, not California Tanker, who is himself very bright and wellspoken).

What we have here is the author, Jim McTague, doing some GOP cheerleading in an investment magazine, designed to hearten conservatives who, like IRON MAN, don't give a shit about the country as long as they make money.

McTague even gives the reason why his analysis is wrong:

It's true that our formula isn't foolproof. In 1958, 1974 and 1994, the wave of anti-incumbent sentiment was so strong that money didn't trump voter outrage. We appreciate that voters in 2006 are hopping mad at the GOP because of the war and because of scandal. We just don't agree that the outrage has reached the level of those earlier times. The reason is that the economy in 2006 is healthier. And the economy is the only other factor that figures in our analysis.

But then tries to tell us that the reasons for the past failure of his model don't apply to the 2006 election - but in reality, they do apply:

In 1958, in sharp contrast to now, the country was in a deep recession. Though the Democrats controlled the House, voters blamed their pain on Republican President Dwight David Eisenhower, and it cost the GOP 48 seats.

Note how McTeague sets up the comparison here. "Though the Democrats controlled the House, the voters blamed the President..." as if that control of the House somehow meant that no recession should exist. And, that voters ought to direct their anger at the House. Two points:

a. the role of the Senate; and

b. the fact that the president, especially a popular one such as Eisenhower, uses his office as the bully pulpit for policies he wants to see carried out

The fact that McTeague ignores/skips both (a) and (b) in setting up his accusation against the House and the Democrats is revealing of his pro-business, money at all costs attitude.

No, the voters blamed Eisenhower for unemployment precisely because he *was* to blame. From the US Dept of Labor:

The Eisenhower Administration did not reject training for combating unemployment. The experience of unions, industries and state governments indicated its effectiveness. But the philosophy of limited governmental intervention prevented the White House from usurping control of both state and private programs or even competing with them. The fact that these activities existed without federal assistance meant to some that the situation did not require additional legislation.45 Eisenhower's economic advisers believed that monetary policy and over-all economic growth was a better approach to the unemployment problem than concentrating on specific areas or industries. The White House's emphasis on tight fiscal policy promoted federal reliance on existing labor market programs (e.g. UI, USES) to cushion the hardships of unemployment rather than initiating new spending programs.

The Eisenhower policies came under severe attack. Reacting to the increasing numbers of unemployed constituents, Democratic leaders attacked the White House as the chief cause of the economic malaise. The JEC, composed of a majority of Democrats, attacked the Administration's preoccupation with price stability and inflation. Since the end of the Korean War, these critics claimed, the restrictive monetary policy served to reduce employment in manufacturing.46 Had the government expanded its fiscal policy, the committee charged, the overall growth rate could have been higher and unemployment lower. While Democrats shared the Eisenhower-Burns concern with curbing inflation, they rejected the sacrifice of growth to gain stability. Moreover, they believed that the neglect of an active manpower policy limited the productive capacity of the economy.

National dissatisfaction with the limitations of "fiscal orthodoxy" became clear in the 1958 election, where unemployment was the chief issue. The Democrats gained 12 seats in the Senate and 49 in the House, all previously held by Republicans. But positive action from the Democratic leadership did not immediately materialize. Labor leaders, especially, were disenchanted when the new Congress failed to pass an emergency extension of UI benefits.47

Moving along to the next broke-dick analysis:

In 1974, a Watergate year, inflation and an Arab oil embargo pinched household budgets and helped fuel voter anger at Republicans.

1. The Arab oil embargo was started as a response to US support for Israel during the Ramadan War in October of 1973. By the time of the Nov 1974 elections, the Arab oil embargo had been run its course, and had ended six months earlier (as of March 18, 1974). The US had 13 months to adjust to the new prices. Anger at the price hike was directed at OPEC and the Arabs, not at the Republicans.

2. Notice how McTeague utterly fails to mention the fact that the Republican President, Richard Nixon, was embroiled in the Vietnam war, appeared to be losing that war, and no end of US involvement was in sight. Probably the single largest element in getting Nixon kicked out of office, and McTeague misses it. Is it because he's just a crappy historian? Or because he realizes that Bush is in a similar position as Nixon, with Bush's Iraq war?

3. And finally, notice how McTeague hurries past the sleaze factor, instead of focusing on it. HE doesn't seem to get that Watergate was to the GOP in 1974 what Foleygate is to the GOP in 2006.

On to 1994:

In 1994, though the economy was improving, unemployment was above 6% and personal income began to fall in the quarter prior to the election, souring the mood of the electorate. People blamed their pain on high taxes, which they associated with Democrats, and ushered in Newt Gingrich & Co.

Nonsense on both counts.

1. A one-quarter change in personal income is not going to impact the voters at the polls. The average person isn't even *aware* of a one-quarter decline - not only because they don't feel the impact that quickly, but also because the economic data tends to be published with a lag of at least 1 or 2 months. The fact that McTeague focused on that obscure fact shows that he is either:

(a) out of touch with what the average voter is worried about, or
(b) he runs with affluent circles where tracking such minutiae is part of doing the daily business.

2. People did not blame their pain on high taxes. They blamed it on a lagging economy.

[godfry n. glad]

Originally Posted by Sauron

Gawd I hate stupid people. There are reasons why economists shouldn't dabble in politics. (Stupid people = the author of this article, not California Tanker, who is himself very bright and wellspoken).

Well, I take exception to this. I think more economists should dabble in politics. As independent commentators. American voters could use some more balanced presentation about economic issues. The problem here is that, with McTeague, what you have is one of those "one-handed" economists. They are just shills for whatever policy of whatever person signs their contract check for consulting.

Also, economists are kinda like Jews, you can have 11 opinions for every ten, maybe more. To have any kind of near accurate picture, you'd need multiple opinions from multiple economists.

[ManM]

Perhaps an economist could explain to Pelosi how a minimum wage increase would affect the labor market.

[California Tanker]

I read that yesterday and was thinking that this should be an interesting test of the Freakonomics guy's* hypothesis that money spent on a campaign is not a reliable indicator of who's going to win it.

As to the Barron's article, I personally make no measure of support or non-support for the proposition it makes. I just thought it was an interesting hypothesis. (And I dislike the 'war chest' concept) I think it does make sense as a factor, possibly even a strong factor, though I do also think it incorrect to take it as the sole major factor. The more 'emotional' the prominent issues are, the less that conventional objective measures apply. Clinton blamed the NRA for the 1994 disaster, which is definitely an emotional argument.

Just one minor comment, though.

2. Notice how McTeague utterly fails to mention the fact that the Republican President, Richard Nixon, was embroiled in the Vietnam war, appeared to be losing that war, and no end of US involvement was in sight.

The last US combat troops left Vietnam over two years prior, and American financial aid was reduced as well. (Actually, wasn't Ford the President for the 1974 election?). Doubtless there was still involvement, but vastly reduced.

Perhaps an economist could explain to Pelosi how a minimum wage increase would affect the labor market.

Without addressing the national effect, because there are multiple theories on the matter...

California's legislature just hiked the minimum wage to $8 an hour. This gives me two concerns about Pelosi's minimum wage idea.

1) California decided that $8/hr is a good min wage for that state. That's about 10% more than the $7.25 nationwide idea. California has a lot more than 10% more expensive cost of living than many of the states: What the national min-wage idea does is effectively reduces the competetive benefit of the cheaper states compared to the expensive ones.

2) If California can raise the minimum wage for its state, then why can not every state create its own minimum wage number based on its own cost of living? To maintain an equal standard of living in Omaha as San Francisco does not require similar wages. Why should this be a federal issue anyway?

NTM

[Sauron]

Originally Posted by ManM

Perhaps an economist could explain to Pelosi how a minimum wage increase would affect the labor market.

Or perhaps you can tell us what you think would happen.

Then I can list the reasons why you're wrong.

[Sauron]

Originally Posted by California Tanker

Just one minor comment, though.

The last US combat troops left Vietnam over two years prior, and American financial aid was reduced as well.

Incorrect. Britannica:

Nixon ordered 11 days of intensive bombing over Hanoi itself (December 18–28) while sending Thieu an ultimatum threatening a separate peace and cessation of U.S. aid if Saigon did not accept the peace terms. The United States was castigated worldwide for the “Christmas bombing,” but, when talks resumed in January, Hanoi and Saigon quickly came to terms. A Vietnam cease-fire went into effect on Jan. 27, 1973, and the last American soldiers departed on March 29.

US involvement, however, continued, right up to the 1974 election, being pulled back right before the fall campaign season kicked off - gee, imagine that:

The year 1974 was characterized by a series of small offensives as each side sought to seize land and people from the other. The North Vietnamese began preparing for a major offensive to be launched in either 1975 or 1976, while the South Vietnamese tried to hold all of the areas under their control, although they lacked the strength to do so. South Vietnam's difficulties were compounded when the United States drastically cut its military aid in August 1974. The morale and combat effectiveness of the ARVN plummeted as a result.

And so the American public blamed the GOP:

Vietnam had been America's longest and most divisive war, and public and congressional opinion flatly opposed any resumption of the agony. The 1973 accords, therefore, were a fig leaf hiding the fact that the United States had just lost its first war despite an estimated expenditure of $155,000,000,000, 7,800,000 tons of bombs (more than all countries dropped in all of World War II), and some 58,000 American lives. Estimates of Vietnamese dead (North and South) totaled more than 2,000,000 soldiers and civilians. In its proportional impact on Vietnamese society, the Vietnam War, 1955–75, was the fourth most severe in the world since 1816.

And from another article:

Agriculture, business, and industry had been disrupted. In the United States, Johnson's economic program for a “Great Society” had been largely halted by the economic and military demands of an unpopular war. The cost of the war has been estimated to have totaled about $200 billion. With the communist victory in South Vietnam and communist takeovers in neighbouring Cambodia and Laos, the new Vietnam emerged as an important Southeast Asian power.

That is what the public blamed the GOP for.

[ManM]

Originally Posted by Sauron

Or perhaps you can tell us what you think would happen.

Then I can list the reasons why you're wrong.

Ok.
An increase in minimum wage will increase the cost of unskilled American labor. So, what is a business to do?

1) Employ fewer unskilled people. Increasing the cost of unskilled labor makes the thought of reducing reliance on that labor more enticing. One form of this entails transferring the employment from unskilled workers to a smaller set of skilled workers. The extreme example is automation, where unskilled labor is replaced by a much smaller set of engineers and technicians.

2) Increase the cost of your goods/services. This is what the service industry does. A service provider needs to meet demand, or else that demand might go to a competing service provider that has the appropriate manpower. They often don't have the option of #1, and must keep their labor pool intact in order to service their demand. In order to maintain their profit, they have to compensate for the increase in costs, and a common way to do that is to increase the cost for their goods/services.

3) Decrease profits. If your business is operating with a decent profit margin, this option may be available. This is good for the workers (increased wages) and customers (constant cost), but not the shareholders (reduced dividends). Given that the board of directors tends to be accountable to the shareholders, such a move is typically unpopular among the upper management.

4) Redistribute wages. Compensate for the increased cost of unskilled labor by devaluing skilled labor. This makes it harder for a business to compete for the skilled labor it needs.

5) Outsource. As the price of American unskilled labor goes up, its value on the global market goes down. This isn't much of a minimum wage problem any more, as the industries that rely on minimum wage labor for production have largely already left for greener pastures, such as China.

So far, this should not be controversial. The money for a minimum wage increase has to come from somewhere, so it is just a matter of figuring out if it is coming from unskilled workers (unemployment), customers (inflation), shareholders (decreased profits), or skilled workers (redistribution).

Now, for the controversy. As the value of American unskilled labor decreases in the global market, outsourcing will become more common. However, the service industry can't exactly be outsourced. A person in India can't fill your order for fries, ring up your new jeans, or clean out the trash in your hotel room. However, a person in India can certainly sew a shirt, glue a rubber sole onto a shoe, or answer a phone. This will have the effect of channeling American unskilled labor into the service industry. As such, I don't think a minimum wage increase will lead to a generally increased unemployment. The service industry needs to maintain its workforce. However, I do think it will lead to an increase in the cost of service. Shareholders aren't going to take the hit, and businesses are still going to need to compete for skilled workers. That leaves the customers to pay for the increases.

Which economic demographic tends to utilize services operated by unskilled minimum wage labor the most? Low income people can't afford to heavily use the services offered by employers of unskilled labor, and I suspect high income people use more premium services (eg eating at Applebees rather than McDonalds, or staying at the Hilton rather than the Econo Lodge). That leaves the middle class to pay for the lion's share of the minimum wage increase.

So, feel free to list the reasons why I'm wrong.

[godfry n. glad]

Originally Posted by ManM

Perhaps an economist could explain to Pelosi how a minimum wage increase would affect the labor market.

Under most circumstances it would mean an across the board increase in the cost of labor. However, relative to the cost of management, the cost of labor in relation to the CPI index has remained nearly static over the past six years. Plus, the productivity of management has been less than stellar and many of the functions once part of the labor market in the United States have been shipped overseas to take advantage of cheaper labor markets. This move has been uniformly detrimental to both consumers and workers, as the quality of service has declined considerably and customers have been encouraged to seek out alternate service and products where they do not have to deal with the mistakes made by outsourcing management decisions. In other decisions which crimp the economy, the redistribution of much of the nation's income towards those who have fewer needs (by subsidizing the wealthy at the expense of the lower economic eschelons) and resulted in a much less vigorous dollar due to reductions in the velocity of money.

Increasing wages and salaries at the lower economic levels and ending the subsidization of the wealthy should act to stimulate the economy. The problem which might arise as a result would be an inflationary trend. This could potentially be countered through increases in lending rates and constrictions upon bank-to-bank lending. However, redistributing labor activity from high-paying non-productive armaments into peacetime production would go a long way to dampen the short-term uptick in expected spending as the relieved debt-ridden pare down their debt loads and upgrade their living standards.

[California Tanker]

Originally Posted by godfry n. glad

However, redistributing labor activity from high-paying non-productive armaments into peacetime production would go a long way to dampen the short-term uptick in expected spending as the relieved debt-ridden pare down their debt loads and upgrade their living standards.

Surely that's the effect of the redistribution from munitions to 'useful' products, not from a minimum wage hike. I don't see an automatic increase in living standards because of an increase in minimum wage, indeed, I see no reason why the cost of living should not increase in accordance with the minimum wage hike: Either directly, as higher costs of manufacture/service are passed directly onto consumers, or indirectly as people selling realise that although demand for an item may remain the same, people will be better able to afford something as they're being paid more: They can afford to raise prices on rent, services, goods, whatnot, because the most basic-waged person has more disposable income. I note you touch on this with your inflation comment, but I see no overriding reason to actively bring an inflation problem on in such a manner, particularly given the disparity in effect between the states of a national minimum wage. If the benefit of an increased minimum wage is definite, why are not more states increasing their minimum wages to the $7 or $8 mark on their own? They're obviously legally capable of doing it if they think its a good idea for their economy.

NTM

[Sauron]

Originally Posted by ManM

Perhaps an economist could explain to Pelosi how a minimum wage increase would affect the labor market.]

Or perhaps you can tell us what you think would happen.

Then I can list the reasons why you're wrong.

Ok.
An increase in minimum wage will increase the cost of unskilled American labor.

Except that the data doesn't indicate that.

To the amazement of classical economists who predicted that a hike in the minimum wage would reduce the number of people being employed at the margin, as well as put small business owners out of business, the reality has been quite the opposite.

Minimum wage. Conservatives have spilled a lot of ink attacking a minimum wage hike. The main gripes: a wage hike will raise unemployment, and will bite into profits and raise consumer costs, spurring inflation; and most minimum-wagers are wealthy teenagers working summer jobs. Don't believe it. John Kerry's proposal to raise the federal minimum wage from $5.15 to $7 makes eminent sense.

Critics rarely offer actual empirical evidence that wage hikes increase unemployment. In fact, past increases in the U.S. -- in 1990-91 and 1995-96 -- had a negligible effect on employment. (Britain and Australia had similar experiences.) Moreover, the Economic Policy Institute (EPI) has debunked the oft-invoked myth according to which states that recently raised wages suffered high unemployment as a result. There was a correlation, but alas, no causation. And as for the "wealthy teenager" argument, consider that after the 1995-96 increase, 35 percent of the gains went to the poorest 20 percent of the population. It was a progressive success, and if a few upscale teenagers also benefit, well, more power to them.

4) Redistribute wages. Compensate for the increased cost of unskilled labor by devaluing skilled labor. This makes it harder for a business to compete for the skilled labor it needs.

Except that an increase in the minimum wage does not devalue skilled labor. The going rate for a doctor does not drop, merely because a McDonald's worker makes an extra $1.15 an hour. If anything, the opposite occurs: the value of the doctor's services would rise, due to the increased buying power of the McDonald's worker.

5) Outsource. As the price of American unskilled labor goes up, its value on the global market goes down. This isn't much of a minimum wage problem any more, as the industries that rely on minimum wage labor for production have largely already left for greener pastures, such as China.

Unskilled labor has never been a candidate for outsourcing, so this particular rationale is way off base. The jobs that are candidates for offshoring were blue collar and mechanical / skilled workers, especially those with high medical or pension costs.

So far, this should not be controversial.

Oh, it's not controversial. Just terribly incorrect, that's all.

So, feel free to list the reasons why I'm wrong.

The chief reason is because the ceterus paribus conditions that you are relying upon are not even close to being in force, in the real world.

A secondary reason - one goal of the reasons for a minimum wage is to reduce dependency on govt programs. So the existence of a minimum wage can be offset by reductions in state support, and taxes lowered (or redirected) accordingly.

Care to try again?

[Dingfod]

Oddly enough, the period of lowest inflation in recent history came along after the biggest increase in minimum wage, when the minimum wage was increased 26% in one fell swoop after being stagnant for 10 years. It was then raise two more times in the 90s to the current wage which is 53% higher than the 1981-1991 wage. Raising it neither caused more unemployment nor led to inflation of any significance.

I am not alone in thinking interest rates have more to do with inflation than minimum wages, which most anyone knows only represents a tiny fragment of the economy anyway.

[godfry n. glad]

Originally Posted by California Tanker

If the benefit of an increased minimum wage is definite, why are not more states increasing their minimum wages to the $7 or $8 mark on their own? They're obviously legally capable of doing it if they think its a good idea for their economy.

NTM

Several states already have broken the $7 mark. Several more are scheduled to do so in the 2007 calendar year. Propositions are on the agendas of several states throughout the country to increase the state minimum wage. However, it looks as though most states take the federal minimum wage level as their floor....meaning that for significant nationwide change, states look to the feds for leadership on this.

So... This is your recommendation for slave labor? (Labor at zero cost)

Increasing wage levels will indeed increase costs to consumers across the board. However, if combined with other measures, such as redirection of productive capacity and tuning of the monetary system, that inflation can be kept well within reasonable bounds. One highly effective means of doing this would be reduce employment in armaments, which produces nothing which supports the economy, while generating excessive numbers of overpaid jobs subsidized by the taxpayer. I'm merely suggesting that reducing the effect of the military/industrial complex (i.e., the war profiteers) upon the economy would go a long ways toward dampening inflation, as well as reducing our national indebtedness. It is most likely one of many measures which could be introduced. Measures to increase savings on the part of the average worker would also assist, but the programs of the past twenty years have encouraged excessive consumer debt, rather than savings. Amassed consumer debt is as big a problem as is the national debt. This is because, in large part, wages have not kept pace with monetary inflation over the past ten years.

[Sauron]

There's also two multiplier effects that have to be taken into consideration here:

1. Economists estimate that approxiately 2/3 of the US economy is consumer-driven, as opposed to being investment driven. Among other things, this indicates that tax breaks for the wealthy are the wrong way to stimulate an economy. But in the context of a minimum wage, it also means that more buying power spread at the bottom of the triangle will have a monstrous overall effect on the US economy. The individual increase in buying power is small, but it's spread across such a large horizontal area of consumers that the aggregate change is large and widespread.

2. IIRC, economists also estimate that the multiplier effect for the military-industrial complex is around 1.5. By that I mean, for every dollar invested into the M/I complex, the economy gets $1.50 back, in new goods and/or services. So investment in the M/I complex usually does pay for itself. However, opportunity cost cannot be ignored. The multiplier effect for the civilian economy ranges from 3.0 to 5.0. So for every dollar sucked up by the M/I complex, the economy suffers lost potential returns of 150% to 300%.

So an investment that generates a 6% back for you initially sounds good -- until someone points out that by investing that way, you passed up an investment that returns 13%. At that point, you're not feeling so good anymore.

[Adam]

Originally Posted by Sauron

Except that the data doesn't indicate that.

To the amazement of classical economists who predicted that a hike in the minimum wage would reduce the number of people being employed at the margin, as well as put small business owners out of business, the reality has been quite the opposite.

Did you leave out part of your response, Sauron? It looks like you're a) making the rather absurd claim that a minimum wage hike will not increase the cost of unskilled labor and b) actually responding to ManM's first few numbered points, not the bit you quoted.

[Sauron]

Originally Posted by Adam

Did you leave out part of your response, Sauron? It looks like you're a) making the rather absurd claim that a minimum wage hike will not increase the cost of unskilled labor and b) actually responding to ManM's first few numbered points, not the bit you quoted.

I'm trying to anticipate his next argument. I'm assuming by "increase the cost of unskilled labor", that ManM is going to tell us about small businesses that can no longer afford to hire as many people, or are forced to go out of business.

As for whether or not a minimum wage hike increases the cost of unskilled labor, it depends upon how it's structured, and who you're looking at when you say "increases the costs". Are you talking about the immediate employer? In that case, a wage hike *might* increase the cost of skilled labor - it depends on how it is enacted. If it's accompanied by a tax credit, or a reduction in govt support programs (i.e., taxes), then the net effect to the immediate employer could be slight, or zero.

[California Tanker]

Originally Posted by godfry n. glad

Several states already have broken the $7 mark. Several more are scheduled to do so in the 2007 calendar year. Propositions are on the agendas of several states throughout the country to increase the state minimum wage. However, it looks as though most states take the federal minimum wage level as their floor....meaning that for significant nationwide change, states look to the feds for leadership on this.

No, you're still not selling me on this. I'm not particularly wedded to the concept of a low (or no) minimum wage as a concept, but I still don't see how a national minimum wage benefits all states equally, or the minimum wage earners within those states.

For example, the Federal Locality Bonus for Oakland is 29%, according to the brochures I see lying around the office's HR dept. It is plain expensive to live here, and $5.15 an hour just won't cut it. A half-decent 2-bedroom goes for akin to $2,000 a month. California has higher taxes than most states. Higher cost of living for pretty much everything. On the other hand, if you hop over to Phoenix, AZ, with a 12% locality bonus, and 2-bedroom houses at $800 a month, your same $5.15 an hour, whilst not exactly getting you into the lap of luxury, will result in a much better comparative standard of living. You can imagine what the figures are like in Cheyenne or Bismark.

The lower cost for everything in those other states is a huge factor of their competetive advantage in attracting business and industry. As one chap from a Nevada Chamber of Commerce put it, "Our best advertisement is California." How will this affect the economies of those states if suddenly they find themselves forced on an equal base expenditure footing with the expensive ones? With the bottom line of people suddenly given by law an extra 20% or so income, they're going to afford more to spend. Landlords might take the opportunity to raise rents, for example.

Except that an increase in the minimum wage does not devalue skilled labor. The going rate for a doctor does not drop, merely because a McDonald's worker makes an extra $1.15 an hour. If anything, the opposite occurs: the value of the doctor's services would rise, due to the increased buying power of the McDonald's worker.

Perhaps I'm not thinking this through enough, but I don't see how that follows. Absolutely there is no direct effect between minimum wage and a doctor's pay, but I'm less convinced there is no knock-on effect, for two reasons.

Firstly, there is the problem of relative perception. Let's say you had a guy earning $5.15 an hour. Then let's say there's a chap doing a different job who's currently earning $7.70, 25% more, because he's either doing a more valued job or is just better or senior. At a stroke of the legislative pen, suddenly the minimum guy is earning exactly the same. Thus in order to retain the perceived value of the service, that $7.70 will have to go up as well and equal 25% or so. Suddenly he's earning $9.50, bringing him level to a semi-skilled chap. This goes all the way up the scale, and will eventually hit the higher levels.

Then you have the buying power effect. Widgets made with minimum wage labour probably just got more expensive. Suddenly those not hit by the minimum wage increase can't buy as many widgets as they used to. Thus in order to retain their standard of living, people will demand higher pay so that they can get back to buying X many widgets a year, on the basis that the cost of buying things is going up. Oh, and the landlord just raised the rent. And again, if you look at locality-based comparisons, a $5.95 widget going to $6.25 is a bigger percentage increase compared to, say, rent, in the cheaper states than the expensive ones. Unless the landlord raises the rent as well. I still just don't see the benefit to Montana of having the same minimum wage as Oregon.

In both cases then, by the time all the knock-ons have stabilised, the ability of a minimum wage guy to pay a doctor (or whatever) as viewed as a percentage of overall pay, seems that it will remain more or less the same. Just the numbers have gone up in size a bit.

What am I missing?

NTM

[Sauron]

Except that an increase in the minimum wage does not devalue skilled labor. The going rate for a doctor does not drop, merely because a McDonald's worker makes an extra $1.15 an hour. If anything, the opposite occurs: the value of the doctor's services would rise, due to the increased buying power of the McDonald's worker.


Perhaps I'm not thinking this through enough, but I don't see how that follows. Absolutely there is no direct effect between minimum wage and a doctor's pay, but I'm less convinced there is no knock-on effect, for two reasons.

Firstly, there is the problem of relative perception. Let's say you had a guy earning $5.15 an hour. Then let's say there's a chap doing a different job who's currently earning $7.70, 25% more, because he's either doing a more valued job or is just better or senior.

Or because the first guy's labor is undervalued, because the employer knows he can get away with it.

At a stroke of the legislative pen, suddenly the minimum guy is earning exactly the same. Thus in order to retain the perceived value of the service, that $7.70 will have to go up as well and equal 25% or so.

I wasn't addressing "perceived value" of the work, only the financially measureable value. But since you brought up this other idea of "perceived value", let's explore it.

1. You assume that the distance between Pay1 and Pay2 has to be respected. If P1 was undervalued, or P2 was overvalued, then there's no reason why that imbalance has to be carried forward and maintained after the minimum wage hike goes into effect.

2. You assume that all the payments to P1 are visible. Sometimes they aren't. For example, if P1 is earing 5.15/hour, then he/she is also probably receiving food stamps, WIC, or housing assistance. That fact isn't immediately obvious when doing a comparison of relative value between P1 and P2 - because in that scenario, you're only looking at explicit wages. In the scenario after the wage hike, P1 would no longer qualify for the govt assistance. Their net take home would be the same, even though the gap between P1 and P2 has narrowed. In other words, the "perceived value" argument is flawed from the get-go, because by definition, "perceived" doesn't fully account for things that are not "perceived" - such as govt payments.

Then you have the buying power effect. Widgets made with minimum wage labour probably just got more expensive.

You're working through the classical economist scenario, and doing a fine job of illustrating it, too. But it has the same flaws that I pointed out to ManM: the ceterus paribus conditions do not hold in the real world. Moreover, the actual economic data collected after hikes in the minimum wage do not bear out the scenarios that you are describing.

I still just don't see the benefit to Montana of having the same minimum wage as Oregon.

Because the evidence shows that state legislatures, being under the control of business, will engage in a "race to the bottom" on issues such as health care, minimum wage, fair labor laws, etc. Without the federal govt acting as a backup parachute for people, the minimum wage would be eliminated - or could take strange forms, such as being offered to whites only, or being offered to 40 hr/week employees only.

[Freddy]

Originally Posted by Sauron

Incorrect. Britannica:

US involvement, however, continued, right up to the 1974 election, being pulled back right before the fall campaign season kicked off - gee, imagine that:

And so the American public blamed the GOP:

And from another article:

That is what the public blamed the GOP for.

American soldiers(combat troops) were not engaged in offensive operations long before the final pullout in March of 1973. Nixon's Vietnamization with ARVN taking over for US ground forces was complete. After that the only US response to North Vietnam's aggression was bombing by the US Airforce. ARVN did the job for the short term but collapsed by 1975 with the fall of Saigon to North Vietnam. Congress on Nov. 7, 1973 passed the War Powers Act and had cut off all funding for Vietnam trying Ford's hands. It is hard for me to see Americans blaming just Nixon and the Republicans for Vietnam. Johnson started the long road to defeat in March 1965 when the first combat troops, US Marines, landed at Danang. Nixon actually attempted to arm South Vietnam in order to defend itself, which is what Johnson should have continued to do and not made it a US war. Back in 1974 at age 20 I admit Nixon was on my crap list, but it mostly because of Watergate, while his role in Vietnam was secondary. Besides Nixon ended the draft in 1972 keeping me from going as my lottery number was 3. I as did many 18 year old voters voted for Nixon in 1972. To me the Democrats had their hands in Vietnam from the beginning.

[ManM]

Originally Posted by Sauron

Except that the data doesn't indicate that.

To the amazement of classical economists who predicted that a hike in the minimum wage would reduce the number of people being employed at the margin, as well as put small business owners out of business, the reality has been quite the opposite.

I listed the options that you, as a business owner, would have. Downsizing is an option, although a good manager should know it is often the last option that should be exercised. In the face of increased costs, decreasing productivity in order to maintain a profit is not a long term strategy for success. Furthermore, I explained in my last post why I think increases in minimum wages will have negligible effects on employment. Citing data that confirms my post does not prove that I'm wrong.

Originally Posted by Sauron

Except that an increase in the minimum wage does not devalue skilled labor. The going rate for a doctor does not drop, merely because a McDonald's worker makes an extra $1.15 an hour. If anything, the opposite occurs: the value of the doctor's services would rise, due to the increased buying power of the McDonald's worker.

Again, I listed the options that you, as a business owner, would have. If you own a McDonalds, and for some reason you employ a doctor at your location, it would be possible to pay him 10 dollars less per hour, while paying 5 minimum wage employees 2 dollars more per hour. You might not pursue this option, but it is an option.

Originally Posted by Sauron

Unskilled labor has never been a candidate for outsourcing, so this particular rationale is way off base. The jobs that are candidates for offshoring were blue collar and mechanical / skilled workers, especially those with high medical or pension costs.

Do you also consider your shoes to have been crafted by skilled labor? The manufacturing industry has been decimated here in the US, and the high cost of labor is a major contributer to the problem.

Originally Posted by Sauron

The chief reason is because the ceterus paribus conditions that you are relying upon are not even close to being in force, in the real world.

A secondary reason - one goal of the reasons for a minimum wage is to reduce dependency on govt programs. So the existence of a minimum wage can be offset by reductions in state support, and taxes lowered (or redirected) accordingly.

Care to try again?

What ceterus paribus conditions am I relying on? The money for the minimum wage increase must come from somewhere, and there are a finite number of options.

As for your secondary reason, do you really mean to suggest that the government pay for the minimum wage increase through tax cuts? If those tax cuts are properly targeted, the whole thing could turn out to be a wash. However, I don't hold out much hope that the Democrats are interested in tax cuts and smaller government.

Originally Posted by Dingfod

Oddly enough, the period of lowest inflation in recent history came along after the biggest increase in minimum wage, when the minimum wage was increased 26% in one fell swoop after being stagnant for 10 years. It was then raise two more times in the 90s to the current wage which is 53% higher than the 1981-1991 wage. Raising it neither caused more unemployment nor led to inflation of any significance.

I am not alone in thinking interest rates have more to do with inflation than minimum wages, which most anyone knows only represents a tiny fragment of the economy anyway.

I don't think the CPI is the best measure to determine inflation on domestic services because it captures foreign labor markets as well. The consumer basket may cost the same, but more of its contents could be imported from China.

Originally Posted by Adam

Did you leave out part of your response, Sauron? It looks like you're a) making the rather absurd claim that a minimum wage hike will not increase the cost of unskilled labor and b) actually responding to ManM's first few numbered points, not the bit you quoted.

I got confused by the same thing. I don't think he is responding to the claim about an increase in cost of unskilled labor. Rather, he seems to be arguing that since modern statistics show employment to remain stable through minimum wage increases, managers do not have the option of downsizing to pay for the increased labor cost. If he is merely arguing that managers do not exercise the downsizing option to a significant degree, I don't see how he is contradicting me.

[Sauron]

Originally Posted by ManM

I listed the options that you, as a business owner, would have.

And I responded by telling you that the actual data does not support your list of restrictions. If your assumptions were correct, then the data would bear them out. That has not happened.

Citing data that confirms my post does not prove that I'm wrong.

You're confused. The data doesn't support your point. Here is some more data for you to chew on:

Employment Outcomes: Does the Minimum Wage Hurt Small Businesses?

Despite the fact that contemporary economic research casts a long shadow of doubt on the contention that moderate minimum wage increases cause job losses, opponents still lead with this argument. This so-called “disemployment” argument is particularly difficult to maintain given two relatively recent developments in the history of minimum wages. First, the quality of empirical minimum wage research rose steeply over the last decade, due largely to economists’ ability to conduct pseudo-experiments3. Such experiments, rare in empirical economics, typically utilize the fact that numerous states (12 as of today) have raised their minimum wage above that of the federal level. This variation between states gives researchers a chance to isolate the impact of the wage change and test its impact on employment and other relevant outcomes. As stressed in the Card and Krueger book cited above, these studies reveal employment elasticities that hover about zero, i.e., they solidly reject the conventional hypothesis that any increase in the minimum wage leads to job losses among affected workers.

Second, following the most recent increase legislated in 1996, the low-wage labor market performed better than it had in decades. The fact that the employment and earnings opportunities of low-wage workers grew so quickly following that increase continues to pose a daunting challenge to those who still maintain that minimum wage increases hurt their intended beneficiaries.

Recently, the Fiscal Policy Institute (FPI) released a study of the impact of higher minimum wages on small businesses4. Their analysis focuses on various outcomes for businesses with less than 50 employees, comparing these outcomes between states with minimum wages above the Federal level and those at the Federal level. If the theory that higher minimum wages hurt small businesses is correct, then we would expect there to be less growth in such enterprises in states with higher minimum wages. In fact, as shown in Figure 5, the opposite is the case.

• Between 1998 and 2001, the number of small business establishments grew twice as quickly in states with higher minimum wages (3.1% vs. 1.6%).
• Employment grew 1.5% more quickly in high minimum wage states.
• Annual and average payroll growth was also faster in higher minimum wage states.

FPI presents similar results for small businesses in the retail sector.

In related research, Waltman, et al. (1998) examine the relationship between business failures and minimum wage increases5. Here again, claims by business-community opponents of the minimum wage suggest that business failures should increase along with minimum wage increases. But in examining this relationship over more than 30 years, Waltman et al conclude that:

“…there seems to be no discernible correlation between minimum wage increases and a rise in business failures, either in the year the increase occurred or in the following year. If anything, the evidence leans the other way” (page 221).

Again, I listed the options that you, as a business owner, would have.

And again, the data doesn't bear out your list of restrictions. To put this simply: it doesn't work like you think it does in the real world, when economists actually observe what happens to business owners, after a hike in the minimum wage.

There now. Was that clear enough?

Unskilled labor has never been a candidate for outsourcing, so this particular rationale is way off base. The jobs that are candidates for offshoring were blue collar and mechanical / skilled workers, especially those with high medical or pension costs.

Do you also consider your shoes to have been crafted by skilled labor?

Yes. The manufacturing industry is skilled labor. Apparently you don't know what "skilled labor" means:

Skilled Labor
Definition

Skilled laborers are personnel with at least a high-school education, but increasingly with two years of tertiary technical school education, who work either as equipment operators on the factory floor or in support positions in business offices, research and development centers, etc.

Shoe manufacturers. And now for the other side of the coin:

Unskilled labor
Definition

Unskilled workers generally have less than a high-school education, are often semi-literate, and perform basic manual labor with little or no training.

McDonald's workers, babysitters, gardeners, vegetable pickers, waste removal, etc. are unskilled labor. They are not susceptible to outsourcing - not merely because they are unskilled, but because the goods and services they provide must be provided at the local level.

The chief reason is because the ceterus paribus conditions that you are relying upon are not even close to being in force, in the real world.

A secondary reason - one goal of the reasons for a minimum wage is to reduce dependency on govt programs. So the existence of a minimum wage can be offset by reductions in state support, and taxes lowered (or redirected) accordingly.

Care to try again?

What ceterus paribus conditions am I relying on?

That the market is at perfect equilibrium, that businesses are operating at full profix maximization, that information is perfect, that capital and labor are perfectly mobile -- for starters.

The fact that the observational data disagrees with you demonstrates that these assumptions are not in force.

As for your secondary reason, do you really mean to suggest that the government pay for the minimum wage increase through tax cuts?

No, I'm merely saying that a higher income will automatically disqualify some people from receiving govt aid, because they'll make too much money. That, in turn, will mean that either:

(a) more people can benefit from the assistance, or
(b) less money (smaller increases) will be needed to keep the program going.

If those tax cuts are properly targeted, the whole thing could turn out to be a wash. However, I don't hold out much hope that the Democrats are interested in tax cuts and smaller government.

Because as everyone knows, the Republicans really are the party of fiscal responsibility and small government.

I don't think the CPI is the best measure to determine inflation on domestic services because it captures foreign labor markets as well.

Are you just making this stuff up as you go? The CPI does not capture foreign labor markets.

The consumer basket may cost the same, but more of its contents could be imported from China.

Which has always been the case, ever since the CPI was created. Some goods are produced domestically, others are not. That does not equate to "capturing foreign labor markets".

The CPI is a measure of the retail cost of goods and services for a group of people, within a defined geographic area. Whether those goods and services are produced locally, or internationally, is irrelevant to what the CPI is designed to measure.