Month: August 2015

Minimum Wage: Down the Rabbit Hole

The minimum wage remains a fiercely debated issue, and the conservative position is too often misrepresented and caricatured into an indefensible straw man. This isn’t helpful to anyone, least of all to the poor and disadvantaged, so it’s well past time to clearly spell out what is at stake and what the positions of both sides are.

While it is a crucial public good to ensure justice in all relationships between employers and employees, it is vitally important to establish policy that takes into account economic realities in the United States and beyond. While the left is quick to point out that industrial era employers paid arguably exploitative wages to workers, they forget to mention the mob extortion tactics of organized labor against employers that followed. Now, the rallying cry of the left is a “living wage”, which is based on the presumption that every worker should be able to earn enough to support a family.

This reasoning seems to be philosophically and morally adequate to justify the minimum wage policy, but there’s just one problem with it. If this policy actually worked, it would surely have worked by now, having been the practice for most of the last 100 years. Still many people buy this political rhetoric, with very few Americans being willing to jump down the rabbit hole to see just how deep the problems go, so we’re at a point where everyone must make a choice.

Either take the blue pill, close this article, and go back to the regularly scheduled bumper sticker issues…

OR

…take the red pill, stop accepting rhetoric at face value, and take a long and serious look at facts that the left doesn’t want anyone to even think about, let alone talk about…

Are we on board? Down we go.

Welcome to the Rabbit Hole. Watch that First Step.

While the left continues to try to frame the issue of the minimum wage as being about helping working families keep up with the rising costs of goods and services, they ignore several fundamental realities of the economy. First, the price of goods are driven by costs, and one of the largest cost drivers of every single good and service in the world is the price of labor. The basic price of materials is literally pennies compared to the cost of labor that’s built into the price of extracting, growing, building, manufacturing, baking, cooking, frying, pushing, or pulling those goods or services into being.

Go to fast food restaurant for a burger. The price of every burger has the price of the meat, bread, vegetables, cheese and condiments included. Also included in the price of that burger is the labor of the cook, the cashier, the manager, and some profit, but we’re not nearly done. In the price of the bread, the meat, the vegetables, and the condiments are the costs of:

  1. the bakers,
  2. the butchers,
  3. the farmers and ranchers,
  4. the gas station attendants and owners,
  5. the delivery truck drivers,
  6. the industrial sales representatives,
  7. and everyone else responsible for producing, transporting, and delivery of the ingredients in any way.

In reality, the material cost of the hamburger is probably less than 10¢ altogether. The rest of the price of the burger is all labor. The same burger that costs $2.00 today cost less than 20¢ in the 1950’s (www.livinghistoryfarm.org). Why did the price change, despite technological advancements that make it easier to produce, care, and extract the basic ingredients? The minimum wage in 1950 was 75¢ an hour (www.dol.gov). Today, the minimum wage is $7.25 an hour, and the effective minimum wage at McDonald’s is $9.00 an hour (www.wsj.com). After the price of labor has increased by more than ten times, should it be a surprise to anyone that the price of the burger has increased over ten times as well?

Second, there are people, who are also poor, with fixed incomes that the minimum wage only hurts, by effectively putting a minimum cost for commodity goods and services. Every time the minimum wage goes up, these people can afford less and less. As bad as things are for the working poor, they are much worse for those on a fixed income. As the price of those burgers go up, so do the price of eggs, milk, flour, meat and vegetables.

And as the minimum rate paid to unskilled labor increases, the amount expected by skilled laborers increases. So the price of water goes up, as the wage of engineers that work at the water plant increases to reflect the additional value of their labor above unskilled minimum wage workers. The price of electricity goes up, as the wage of engineers that work at the electricity generation plant increases to reflect the additional value of their labor above unskilled minimum wage workers. The price of housing goes up, as the wage of construction workers increases to reflect the additional value of their labor and the inherent danger of their career above unskilled minimum wage workers. The surest way to make life harder for the elderly living on Social Security is to raise the minimum wage.

Third, there is a third world, and it has been industrializing for decades now. The minimum wage law doesn’t even consider the entire rest of the world, and it is destroying American competitiveness in the global market place. The average wage for manufacturing workers is $19.93 as of July 2015 (www.tradingeconomics.com), and manufacturing worker in India doing much the same job is paid as much as $1.46 an hour or as little as 10¢ an hour (www.tradingeconomics.com).

For the price of one American skilled laborer, a company can hire a dozen equally skilled employees in India. At $7.25 an hour, the rate required by law for American unskilled labor is almost five times the price of skilled labor in India. By taking production to practically any other developing economy, a company can cut their production labor costs anywhere from 80% to 95%. Is it a mystery why the manufacturing and textile industries left the United States?

Fourth, and worst of all, the minimum wage does absolutely nothing to ensure that economically depressed regions (such as economically depressed rural areas and inner cities) have the capital available to support the wage. It is obvious that having to pay someone $7.25 an hour requires more money than having to pay someone $5.15 an hour for the same work. The higher the minimum wage, the more money it takes to employ a worker.

In areas that are already economically depressed, the price of labor is already at the point where every new job comes at a high premium. Unemployment rates are highest in urban environments and rural areas where jobs are scarce, and the minimum wage law does nothing to reduce either poverty or unemployment. In reality, all the minimum wage law does is insure that any job that would otherwise exist with a wage between 1¢ and $7.24 an hour is illegal. Even if the worker, desperate for work, would be overjoyed with a wage of $5.00 an hour, and the employer simply can’t afford even a penny more than $5.00, the federal government is so certain that this job should not exist that this job is illegal.

That’s why there are no children cleaning windows at gas stations, no children bagging groceries at check outs, and no children selling newspapers on street corners. Now, we pump our own gas. Now the cashier bags groceries after ringing them up. Now newspapers are sold from vending machines or at magazine stands. Not because these things are any more expensive to do, not because there aren’t children that wouldn’t love to earn a little pocket change and would do these things, but because these jobs simply aren’t worth paying $7.25 an hour to do.

Rock Bottom Hard Truth

Now that we’ve hit rock bottom. Reality has stripped away leftist rhetoric, and reality isn’t going away. Yes, we have to protect workers from exploitative wages. Yes, we have to try to do something about the cost of living. Yes, we have to do something about revitalizing the American manufacturing and textiles industries. But we’ve been trying the leftist answer for fifty years, and it hasn’t worked.

The rest of the industrialized and industrializing world is not going to go away, and the American skilled worker needs to be able to compete on price, not just productivity. The cost of living is linked to issues of scarcity and consumption, and honestly, there’s little that can be done about these issues in the face of the laws of supply and demand. There has to be an amount an hour that can be paid to the American unskilled worker that is commensurate with the value of their productivity and won’t be exploitative.

The value of the dollar needs to be based on the value of productivity, able to represent the most basic unit of work: the unskilled and inexperienced worker. Whether it’s a teenager looking for a little pocket money to help pay for the car that his parents agreed to go halvsies on or it’s the mother going to work for a second income to try to earn a little more to help with the family budget, it is a social good to make room in the economy for jobs like these to exist, because in a robust economy, it shouldn’t require a college degree just to earn a basic income.

So what should the minimum wage be?

The Currency Wage Policy: $1.00 an hour

With a wage rate tied to the value of the currency, foreign industrialized and industrializing countries must compete on price and productivity with American workers, making American manufacturing competitive even in foreign markets. It also reduces the competitive exchange advantage of foreign workers to illegally immigrate to the United States to work at relatively high wages and sending the excess value to their home countries.

At $1.00 an hour, the value of the currency has an easily understood value, tied to the cost of unskilled labor. A worker can earn a dollar by performing basic labor (such as bagging groceries or cleaning houses), and the price of basic goods and services can be easily correlated to basic labor pricing. The domestic wage scale would be stable in regards to the premium on wages paid for skilled and experienced labor versus unskilled and inexperienced labor. As the value of currency increases, the buying power of lower wage earners and those on fixed income becomes less variable.

The Currency Wage Policy ($1.00 minimum wage) would restore the American dollar along side the American worker to a position to compete on the world economic stage on stability and productivity. This is the sensible alternative to the gold standard which would require billions of tons of gold in order to establish a meaningful transaction rate in today’s economy, which would grossly exacerbate industries that utilize precious metals for manufacturing (jewelry and electronics).

The fact is, we cannot continue as we have, with our currency untethered to any meaningful commodity, and with the left continuously pushing for meaningless increases in the minimum wage, which have proven to do nothing but create unemployment and destroy the buying competitiveness of the American worker. The Currency Wage Policy is the answer to the riddle, tying the value of an currency undeniably to human productive power, the highest good there is.

Liberty is For The Win!

LibertyIsFTW asserts that helping the poor and disadvantaged is a real and necessary public moral good. Since socialist leftist policies have consistently failed to improve the lives of the disadvantaged, it is a moral duty of conservatives to promote solutions that are proven to actually lift people out of poverty!

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Ronald Reagan: Champion of Liberty

So immense is Reagan’s legacy that almost thirty years after leaving office and over a decade since his death, the left continues to talk about Reagan. Not because they want to, but because they have to.

To Millennials coming of age today, the reverence that many conservatives have for Ronald Reagan must seem inexplicable. Nothing that they have been taught about Ronald Reagan’s presidency justifies the deep admiration and respect conservatives have for him. They have lived their entire lives in the shadow of Reagan’s “shining city on the hill”, growing up in an America without serious economic rivals or even military peers, with prosperity that is without parallel in human history. For them, the economic abundance all around them is as normal as the air they breathe, but it isn’t connected in any meaningful way to Reagan’s legacy.

The fact remains that, whatever one may think about Ronald Reagan as a man or as a politician, it is undeniable that his eight years in office has shaped the course of American politics for over three decades. So immense is Reagan’s legacy that almost thirty years after leaving office and over a decade since his death, the left continues to talk about Reagan. Not because they want to, but because they have to. When people talk politics, Ronald Reagan is brought up along side Thomas Jefferson, Abraham Lincoln, and Franklin D. Roosevelt. That is Reagan’s legacy.

It’s Ronald Reagan in this context that the Millennials don’t grasp, and it’s why the left is rising now, crying “Change!”, because the “change” they seek is impossible without the support of a whole generation of young Americans with no idea of who Ronald Reagan was. Because to change Americanism, to do away with the basic idea that the individual’s rights to “life, liberty, and the pursuit of happiness” trumps the collective power of the state, to break the beating heart of capitalism, the left must destroy Reagan. And this is exactly what they are trying to do.

At the core of Reagan’s legacy is his economics policy. Whether you want to call it “trickle down economics” (as his critics do), “supply side economics” (as conservative economists do), or even just “Reaganomics”, it’s not possible to understand how Reagan changed history without first talking about how things were before he took office. Let’s take a brief look at the three decades before Reagan, from January 1st, 1950 through December 31st, 1980.

Government is the problem.

Since Adam Smith and Karl Marx, we have lived in a world of competing economic perceptions but not economic realities. The business cycle (expansion, recession, and recovery) is a fact of life in any civilized culture. Economies will grow, economies will shrink, and economies will recover, as long as resources are scarce in any way. This is just how things are and is not up for debate. For decades, however prevailing wisdom, especially of those in government, was that government solved recessions, and very few could even imagine that the government could actually be the cause.

In 1950, the top marginal income tax rate was around 90%. Taxes stayed between 80% and 94% of all top incomes since 1945. It wasn’t until 1964, when Congress finally brought it down to 77%. By election night in 1980, the top personal income tax rate had been 70% for a decade (taxfoundation.org).

In this same time period from 1950 to 1980, there were 22 quarters with GDP growth at 0% or less, with 5 periods of consecutive quarters of negative GDP growth (www.tradingeconomics.com). Like harsh winters, droughts, or hurricanes, when these recessions came, they destroyed businesses, personal livelihoods, and jobs. Unemployment spikes in time with recessions, making recessions the number one killer of jobs (shown below).

GDPgrowth1950-1980unemployment1950-1980(trend)

With 5 recessions in 30 years, that is a recession every 6 years, lasting 7 to 8 months each, leaving just 5 years for recovery and growth on average. In most cases, there were fewer than 4 years for recovery and growth, which led unemployment to trend upward. In the 1960’s, there was a respite where economic and job growth continued unabated for over a decade, this after the decrease of the top marginal income tax to 77% in 1964.

In the late 1970’s, the economy entered a state of high inflation, high interest rates, high unemployment, and low economic growth that became known as “stagflation” (a stagnant economy with high inflation). As always, the American people turned to the government for a solution but no solution was forthcoming. Then along came Ronald Reagan promising a “morning in America”, but so ingrained was the inevitability of recessions that George H. W. Bush, then Reagan’s GOP presidential rival, called Reagan’s policies “voodoo economics”.

Ronald Reagan’s optimistic campaign won out, taking 44 out of 50 states and the District of Columbia. As soon as he was in office, Reagan lowered the top tax rate from 70% to 50% and taxes on unearned incomes to 20%. Though he rolled back some of these cuts in 1982, in 1986, he lowered the top marginal rates from 50% all the way down to 28%. Reagan deregulated the petroleum industry and lowered the windfall profit tax in 1981, and later eliminated the windfall profit tax altogether in 1988. Many in Washington, D.C. fully expected the wheels to come off of the economy.

The Last Best Hope

In the 30 year period from the recovery in 1983 to 2013, there have been only 10 quarters where GDP was 0% or less with only 2 recessions in that period (www,tradingeconomics.com). Reagan’s “voodoo economics” cut the number of recessionary quarters in half. The average economic boom/bust cycle went from 6 years to 15 years, with average recovery and growth cycles growing from 4 to 5 years up to 9 to 10 years.

GDPgrowth1983-2013

His core principles of low taxes and deregulation have been the beating heart of the United States economic machine, and most of his policies have remained untouched through most of four presidential Administrations. But the true miracle occurs for the American worker. When you compare the GDP growth to unemployment trend line for the 30 year period from 1980 to 2010, it becomes obvious why Reagan won reelection by a landslide margin of 49 out of 50 states and the District of Columbia.

GDPgrowth1981-2010unemployment1981-2010(trend)

From the recession of 1981 through 1982, until 2007’s Great Recession, the unemployment numbers trended downward in a complete reversal of the 30 year period from 1950 to 1980. This is Reagan’s true legacy. Many on the left have tried to give credit to Clinton for the economic successes, but they won’t tell the Millennials that the only thing Clinton changed was to adjust the top marginal tax rate up to 39.6% and expand the Carter era Community Reinvestment Act (C.R.A.) which arguably sewed the seeds of the mortgage loan collapses that lead to the recession in 2007 and 2008.

It took the Great Recession to bring the Reagan economy to an end, but the pieces of the Reagan legacy are still in place. Like the ruins of the Roman Empire in the waste of Dark Ages Europe, the fundamental building blocks of a new Reagan economy are still there. They will just need a true believer to restart the American engine. A visionary that understands that the government can’t solve economic problems, only creating them. Our only hope for a new “morning in America” will come in 2016. If Millennials can come to understand the real legacy of Reagan, then the future of Americanism is bright indeed.

Liberty is For The Win!

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