Month: February 2014

Minimum Wage – Part I

by Brian Boone

Different businesses entail a different level of risk.  A restaurant, for example, may require the owner to fund and make tenant improvements, enter into a long-term lease agreement to secure the physical premises and commit the time and expense to hire and train a core staff; and these commitments are required before the first entrée is served.  A restaurant owner can vary staffing and food ordering somewhat according to the volume of patrons and related sales, but the rent, the payments on the tenant improvement loan, the insurance, the payroll cost (and required benefits) for the chef, dishwasher, hostess, bartender, and an estimated level of supply and food inventory to insure quality and service are all fixed and have to be exceeded by sales, at a minimum for the venture to survive.  If the owner works in the restaurant as a manager, she must collect a base wage for her services as well if she is to pay her mortgage.  If a break even level of sales is not reached (a level that can cover all of these costs of essential resources) the owner will have to invest more capital (short-term) or will possibly have to shut the doors to patrons (long-term) and will suffer great loss of down payment capital and with liability to the landlord and bank for the tenant improvements.  Of course we see restaurants fail and close often.  This risk may differ from the risk of launching a new publication for local distribution.

In the example of the restaurant, it may be that the expected income to the owner assuming success, given the costs of resources, is sufficient to pay the owner a fair wage to compensate for the contribution of time and effort as well as additional income to provide a return on the investment of savings and to serviced the debt requirements compensate for the risk of borrowing.  Let’s assume that the government is proposing to impose a minimum wage (or wage increase) and that prior to the increase, the restaurant owner was able to attract an available supply of labor for dishwashing and table bussing at $6 per hour.  Let’s assume the government is proposing an increase to $12 per hour.  The restaurant owner may realize that the net profit he expects will no longer provide for a return on investment and will substantially increase the risk that she will even be able to draw a wage for herself that will allow her to pay her personal bills.  The owner will feel trapped in that the bank and the landlord, who rely on and “banked” on her success will still require payment.  The owner could try and raise the prices on the menu to offset the cost but, ultimately, the owner would likely cut her losses and would close the doors and might file for bankruptcy protection.  The restaurant shut-down would cost the Chef, the bartender, the hostess, the bussers, the servers, the dishwashers and the owner their jobs.

Many proponents of increasing minimum wage complain that an employee at the current level ($6 in the hypothetical example) cannot be self-supporting.  Is it important that any solicitation for labor in our economy provide sufficient compensation to allow an individual to be self-supporting?  What about the family where the wage of the dishwasher supplements the income from another household member?  Many proponents suggest that the higher minimum wage will put money in the pockets of consumers and that this will improve the economy.  If this is true, I am wondering why we would be so foolish as to stop at $12 per hour as a minimum; why not $50 per hour or $100 per hour or $1,000 per hour?  If your answer is that $50 is too high or is ridiculous then I ask you:  why is $12 the proper and reasonable amount?  Because risk profiles are different for different businesses, maybe the minimum wage should be different for different businesses?

There is one mechanism available that can effectively set minimum wages for businesses at unique and different levels:  the invisible hand of the free market that provides for the pricing of resources according to the free market bidding and competition for those resources.  If people are sitting with no-employment at all, the restaurant owner, may be able to attract qualified labor for dishwashing at a lower rate, but if there are higher rates paid by homebuilders for laborers to the point that there is a shortage of qualified dishwashers, the restaurant owner would have to raise the pay rate accordingly.  Opponents to the free-market method believe that there is some guy with a suit on in Washington (who, of course spoke to a guy with a very slick econometric simulation model in a spreadsheet) who can determine that some single rate works best.  Of course this “Washington suit” does not want the restaurant owner to shut the doors of the restaurant or for the car wash owner to close after he attempted to raise his rates to pay his laborers only to find that the restaurant owner (along with other employed and newly unemployed) has decided she has plenty of free-time to wash her own car, given the higher prices.

The neighbor may be willing to hire the boy down the street to mow his lawn at $6 but would mow it himself at the $12 rate thus removing critical supplemental income for a struggling family.  How can one minimum wage rate be optimum and effective for all businesses providing goods and services when each business is subject to different supply and demand dynamics?  If I am hungry and in a government funded shelter and I can earn $2 per hour to pass out marketing fliers to augment my need for public assistance, isn’t it better for me than not to work at all to provide something for myself?  If you set the minimum wage too high, the business owner may pass out the fliers herself or may choose a different media method for advertising her city bike tour business.  Then the resource of effort provided by the unemployed worker is lost as well as the chance at some level of self-sufficiency and self-respect.  If there is no unintended consequence of failed businesses and loss of available jobs, then why not raise the minimum wage to $25, $50, $100 or even $1,000 per hour.  The invisible hand of the free market is considered ineffective by many because there are some jobs that would be priced at such low rates, that the job would not completely lift the employee from poverty (without other family income , public assistance, or communal efforts.)  But the hand of the suit in Washington is also imperfect and inefficient because it eliminates the opportunity for citizens to even partially contribute to their families or to limit the need for public assistance by artificially raising the price of a resource thus eliminating jobs that would otherwise exist.

While a minimum wage is an idea that was born from noble aspirations, it serves to have the opposite effect than the one desired.  With a minimum wage, we will have more people without an opportunity to provide for themselves.  This unintended consequence is inevitable and cannot be ignored lest you agree then that $1,000 per hour or more would be an even better policy than $12 per hour.  Unfortunately with incredible appeal and political skill, the politician calling for a higher minimum wage (quite appealing to the voters) will find a way to deflect responsibility for the unintended consequences of the government meddling with the free market and will blame them on his opponent.

One might ask what minimum wage has to do with personal sovereignty and the cause of freedom?  Minimum wage interferes with the freedom of one to offer employment to another at a free market price and with the freedom of one to accept an offer of employment from another at a free market price.  This limitation on the free will of both sides of the transaction is argued to be justifiable given the intent of it’s policy without full regard for the practical impact of it’s policy.  The goal of causing hard working people to receive a higher wage is noble while the unintended result of causing people to be wholly unemployable and then, by necessity, dependent entirely upon those still employed, at or above the minimum, is counterproductive and contrary to the goal itself.

Tocqueville on the Role of Government

I was thinking about Tocqueville and the amazing impact his treatise about America had on me when I first read it in college and I thought I would re-acquaint myself with some of his writings given my belief and fear that the “pop culture” guided generation have grown now unwittingly to a tyrannous majority in our country.  Those in the majority appear to believe that it is self-evident that big government is good and that the role of big government it to take care of its people.  They believe that our government should take care of its people while demanding nothing in return from other than the “wealthy.”  They seem to be unwittingly gathering in force and growing exponentially.   Those same people appear to believe that there is no unfortunate and undesirable event or circumstance that cannot be obviated by new rules authored by the pen of a legislator.  I believe that this new generation of American has taken over voting results and that their hope is borne by a valuation of false promises and false premises of politicians who make those promises in exchange for their votes.  The assumptions of the vote pandering politicians: wealth exists regardless of the behavior and actions of citizens;  such wealth should be and can be simply redistributed without threatening its existence and availability;  volumes of proper rules and regulations (never mind the restrictions on individual freedoms) will ultimately insure a path to a utopian paradise.  It is amazing to me that Alexis de Tocqueville  (a Frenchman!) visited America so very long ago (well before the time of radio, television, the internet, social media and the power of pop culture) and could see the dangerous path that we would walk as a Democratic Republic threatened by the tyrannous majority and it’s popular opinions.

Below are some amazing Tocqueville quotes and passages that are even more powerful and meaningful in our present time of electronic media, where the majority or popular view will seemingly always carry the day in favor of any rigorous examination requiring meaningful thought.  Democracy in America is standard reading for college students but I have always been particularly impacted by the amazing wisdom and foresight of that treatise.

“Democracy extends the sphere of individual freedom, socialism restricts it. Democracy attaches all possible value to each man; socialism makes each man a mere agent, a mere number. Democracy and socialism have nothing in common but one word: equality. But notice the difference: while democracy seeks equality in liberty, socialism seeks equality in restraint and servitude.”
― Alexis de Tocqueville

“The American Republic will endure until the day Congress discovers that it can bribe the public with the public’s money.”
― Alexis de Tocqueville

“Americans are so enamored of equality, they would rather be equal in slavery than unequal in freedom.”
― Alexis de Tocqueville

“We can state with conviction, therefore, that a man’s support for absolute government is in direct proportion to the contempt he feels for his country.”
― Alexis de Tocqueville

“everybody feels the evil, but no one has courage or energy enough to seek the cure”
― Alexis de Tocqueville, Democracy in America

 

“Our contemporaries are constantly wracked by two warring passions: they feel the need to be led and the desire to remain free. Unable to destroy either of these contrary instincts, they seek to satisfy both at once. They imagine a single, omnipotent, tutelary power, but one that is elected by the citizens. They combine centralization with popular sovereignty. This gives them some respite. They console themselves for being treated as wards by imagining that they have chosen their own protectors. Each individual allows himself to be clapped in chains because that the other end of the chain is held not by a man or a class but by the people themselves.”
― Alexis de Tocqueville

 

“It is indeed difficult to imagine how men who have entirely renounced the habit of managing their own affairs could be successful in choosing those who ought to lead them. It is impossible to believe that a liberal, energetic, and wise government can ever emerge from the ballots of a nation of servants.”
― Alexis de Tocqueville

“Tyranny in democratic republics does not proceed in the same way, however. It ignores the body and goes straight for the soul. The master no longer says: You will think as I do or die. He says: You are free not to think as I do. You may keep your life, your property, and everything else. But from this day forth you shall be as a stranger among us. You will retain your civic privileges, but they will be of no use to you. For if you seek the votes of your fellow citizens, they will withhold them, and if you seek only their esteem, they will feign to refuse even that. You will remain among men, but you will forfeit your rights to humanity. When you approach your fellow creatures, they will shun you as one who is impure. And even those who believe in your innocence will abandon you, lest they, too, be shunned in turn. Go in peace, I will not take your life, but the life I leave you with is worse than death.”
― Alexis de Tocqueville

“What good does it do me, after all, if an ever-watchful authority keeps an eye out to ensure that my pleasures will be tranquil and races ahead of me to ward off all danger, sparing me the need even to think about such things, if that authority, even as it removes the smallest thorns from my path, is also absolute master of my liberty and my life; if it monopolizes vitality and existence to such a degree that when it languishes, everything around it must also languish; when it sleeps, everything must also sleep; and when it dies, everything must also perish?”

“There are some nations in Europe whose inhabitants think of themselves in a sense as colonists, indifferent to the fate of the place they live in. The greatest changes occur in their country without their cooperation. They are not even aware of precisely what has taken place. They suspect it; they have heard of the event by chance. More than that, they are unconcerned with the fortunes of their village, the safety of their streets, the fate of their church and its vestry. They think that such things have nothing to do with them, that they belong to a powerful stranger called “the government.” They enjoy these goods as tenants, without a sense of ownership, and never give a thought to how they might be improved. They are so divorced from their own interests that even when their own security and that of their children is finally compromised, they do not seek to avert the danger themselves but cross their arms and wait for the nation as a whole to come to their aid. Yet as utterly as they sacrifice their own free will, they are no fonder of obedience than anyone else. They submit, it is true, to the whims of a clerk, but no sooner is force removed than they are glad to defy the law as a defeated enemy. Thus one finds them ever wavering between servitude and license.”
When a nation has reached this point, it must either change its laws and mores or perish, for the well of public virtue has run dry: in such a place one no longer finds citizens but only subjects.”
― Alexis de Tocqueville

Tocqueville left us a tremendous gift.  As a Frenchman he was an objective researcher and observer.  He could see the power of public opinion and how it could be an almost invincible harnessed political power.

We proceed now it seems that with our new “fairness” model (authored by President Obama and his contemporaries) and the belief that we can ultimately conquer the un-pleasantries in the forces of nature and natural selection.   There is no problem too big and abstract that a new law cannot solve and there is no human struggle that cannot be extinguished by simple reallocation of our vast resources.  If we are smart and have a “fair” allocation of our nation’s wealth and resources we can rise above nature and insure that no fellow man will suffer, after all we are not animals!  We now seem to follow a belief that fairness dictates that our natural differences should not produce different results.  This new found call for “fairness” (the defining issue in President Obama’s presidency) suggests that we should ultimately all have equal results.  Why are we fooled into thinking that we can only be at our best when no one man struggles at the same time that one man has as luxury beyond his need?

What will come of us if this idea succeeds and if we are finally so “equal” that we are indistinguishable?    What will come of us if our growing body of laws and rules actually succeed in eliminating any danger or hardship from our lives (nor more guns, pressure cookers and not concern for want of food and shelter.)  Would that be a sustainable model?  That which does not kill you makes you stronger, right?  I am sorry to remind you but we will all die ultimately regardless of how much risk we attempt to eliminate from our lives.  Real strength and vitality is borne from the hardship that threatens the very life we attempt so feverishly to preserve, isn’t it?  We are now a culture and society where we, almost universally, buy the chance at hardship in a gymnasium in order to stay physically strong and buy subscription to challenging mind games to keep our mental abilities sharp.   Why, then,  do we think we are doing a fellow citizen a favor by favoring a government that will endeavor to eliminate hardship for all as long as any one has it economically better than another.  Every animal on the planet that survives is strong because of the very struggle that threatens to eliminate it and yet we would deprive our own kind of that important struggle and individual story in the name of “fairness.”

INCOME INEQUALITY, A TRUE REFLECTION OF FREEDOM

by Brian Boone

I have a highly valued relative who is a genealogy expert.  She can trace my family back to the earliest settlers from Europe.  My great, great, great grandfather, Andrew Jackson Myers, homesteaded property in Northwestern Kansas and was a Union Army soldier who fought in the battle of Allatoona in Sherman’s famous march to the sea.  My grandmother who recently died at the age of 94 in McCook, Nebraska, actually lived with Andrew Jackson Myers for a time when she was a child.

I used to sit and talk for hours to my grandmother Betty from Nebraska and her mother, Blanche, my great grandmother, about their early lives, struggles and their American dream.  Interestingly, they recalled that when they were young and poor (poor according to their standards at the time and compared to some of their neighbors) they were still happy to be living in America and to have the chance to continue to face their own independent struggle and challenge to improve their lives.  My Grandmother was a part of what we called “the greatest generation.”

Isn’t it important to look back where we came from and to hear the stories of people that came before us?  After all, isn’t our history and past a part of the very foundation from which we build and grow as a nation?  I know that this Myers and Carpenter line of my family struggled to provide the basic necessities in early America.  I believe this was the case for many early settlers.  There are more stories like this than there are stories of plantation owners that used slave labor to raise their stake in the claim of wealth and income in the southern colonies.  In fact, my ancestor Myers risked his life and many others like him, coming from humble circumstances, died fighting to end slavery and preserve the union.

America did not have today’s great social safety net and public assistance programs in the 1800’s when my Grandpa Myers lived.  Many died young as they struggled to survive while some barely survived and other’s prospered economically.  And yet people still came to America to set down roots full of hope and promise and were happy to struggle if it meant they would be free to practice their chosen faith and to keep what they earned.  Some prospered more than others but each worked to try and improve their lives and the lives of their children.  It was the goal, I believe, of each family to work to provide any advantage they could for the next generation in the age old human struggle for scarce resources.  The people of that time, whether or not they believed it to be the proper role of government, did not expect their government to take care of them.  What they did expect is freedom to live their lives as they chose and understood that, as such, they had to accept the results born from their own behavior, decisions and fortune even if the neighbor had more success.

Our honorable President has stated that “income differential” is the defining issue of our time.  I am very well educated and credentialed and yet I still do not understand exactly how this issue is truly defined and exactly why this is a big problem for America.  I do not think our leaders have made this clear.  I understand the issue in the abstract and I certainly understand the political genius of President Obama placing this issue on his calling card (for most all American’s there are others who have more wealth and income.)  But if this is the defining issue of our time, isn’t it important for the terms in this discussion to be very clearly defined?

I understand that our President points to what is referred to as an income gap where wealth and annual income are concentrated and “skewed” with 1% of the American people.  The idea is that we need to close this gap and that we need to enact policies that close this gap.  I would like President Obama to define the exact measure, metric and standard that will cause us to conclude we are finally successful?  What is the end game?  Will we not rest and leave the results to the free market until income and wealth are equal for all Americans?  If this is not the end game of new policies, then exactly what will the distribution of annual income experience and wealth look like when we can all breathe a sigh of relief and realize that we have met our goals?

Politicians throw around terms like “wealthy”, “rich”, “poor”, and “living in poverty.”  If “income differential or wealth differential” is the defining moment of our time should these terms be used so loosely by our public servants, our leaders in Sacramento and Washington?  These terms certainly stir our emotions and provide, as such, powerful political rhetoric.  In fact, the terms wealth and income are used interchangeably by many politicians and yet my degrees, credentials, and experience tell me that income and wealth are two very distinct things and that the distinction is important.  This distinction is evidently not important in the political arena.

How can we produce another generation that can earn the distinction of being referred to as the greatest generation?  What if the key determinants for evolution to greatness for my Grandmother’s generation were hardship, struggle and self-relience?  What will future generations look like that are a product of the “new” paradigm that the proper role of government is to take care of it’s people?  Is the strongest tree in the forest the one that depends on stakes to stay rooted or is it the one with the strongest trunk born from its exposure to the elements and its struggle to survive?

Currency allows us to trade and acquire goods and services to meet our needs, to provide for security reserves and possibly luxury.  But no amount of money given to a citizen can afford them, the self-respect, self-satisfaction, strength, and the kind of happiness my Grandmother experienced.  We will all die someday, so preservation of a heartbeat is ultimately a futile goal and a relatively low bar to set for our people.  We need to measure our people and each of their lifetimes, not by the money left behind, but by the extent to which they achieve independence, enjoy the challenge of playing the hand they are dealt, accept the outcome with honor, and appreciate what it truly meant to be free.  Income differential in America is the clearest evidence of true freedom at play.  We should see it as a great symbol of American freedom.  The greatest generation understood freedom to be America’s greatest treasure.  Now, I fear, we want to create a new generation that cannot take ownership of their own lives and that will be dependent wards of the state, shackled to a false promise of purpose and satisfaction.