#RaiseTheWage – In which Seattle Leftists gets a needed lesson in economics

March 16, 2015
"But at least we won the election! Obama!!"

“But at least we raised the minimum wage!”

It must be nice to be a progressive; you never have to worry about the real-world consequences of your actions. Fighting for social justice? Great! Let’s raise that minimum wage in the interests of (all bow) fairness. Surely those petit bourgeois small business owners can afford it — they’re probably making more money than they should, anyway. It’s time to spread the wealth around. You, the city councilors and progressive voters of Seattle know better than any shop owner what he can afford to pay!

Strangest thing about choices: they have consequences.

Seattle’s $15 minimum wage law goes into effect on April 1, 2015. As that date approaches, restaurants across the city are making the financial decision to close shop. The Washington Policy Center writes that “closings have occurred across the city, from Grub in the upscale Queen Anne Hill neighborhood, to Little Uncle in gritty Pioneer Square, to the Boat Street Cafe on Western Avenue near the waterfront.”

Of course, restaurants close for a variety of reasons. But, according to Seattle Magazine, the “impending minimum wage hike to $15 per hour” is playing a “major factor.” That’s not surprising, considering “about 36% of restaurant earnings go to paying labor costs.” Seattle Magazine,

“Washington Restaurant Association’s Anthony Anton puts it this way: “It’s not a political problem; it’s a math problem.”

“He estimates that a common budget breakdown among sustaining Seattle restaurants so far has been the following: 36 percent of funds are devoted to labor, 30 percent to food costs and 30 percent go to everything else (all other operational costs). The remaining 4 percent has been the profit margin, and as a result, in a $700,000 restaurant, he estimates that the average restauranteur in Seattle has been making $28,000 a year.

“With the minimum wage spike, however, he says that if restaurant owners made no changes, the labor cost in quick service restaurants would rise to 42 percent and in full service restaurants to 47 percent.”

Restaurant owners, expecting to operate on thinner margins, have tried to adapt in several ways including “higher menu prices, cheaper, lower-quality ingredients, reduced opening times, and cutting work hours and firing workers,” according to The Seattle Times and Seattle Eater magazine. As the Washington Policy Center points out, when these strategies are not enough, businesses close, “workers lose their jobs and the neighborhood loses a prized amenity.”

I imagine reaction of residents must be like that of fans of a beloved local bookstore were shocked when it closed after The Special City raised its minimum wage — they cry “I had no idea!”.

Damn straight. It’s also called “magical thinking,” in which you get to do whatever you want with no blow-back. Then you wake up and realize it was all a dream.

Like I’ve written many times before, there are basic rules of economics our economically illiterate progressive compatriots need to hear. Again:

Labor is a cost, because the business owner has to provide wages and, often, benefits that cost him more money. When a government mandate increases that cost, the business owner has three choices: pass the cost along to the customer, who may decide it’s too much and stop shopping there; cut employee hours and stop hiring to save on labor costs, thus costing potential jobs and putting a burden on workers still employed; and, finally, just decide it’s not worth it anymore and close up shop. In the low-margin bookseller business, Borderlands’ owner chose the last course as the only one viable.

Do recall this mandated wage increase comes on top of any additional expenses required under Obamacare. No wonder owners in the thin-margin restaurant business are calling it quits!

Dan Mitchell calls it “Destroying Jobs with Innumerate Compassion.” Perfect.

Of course, this won’t stop the progressives who run the LA city council from making a similar mistake, here, because… magical thinking.

Via Rick Moran, who also quotes a great explanation from Reason about the connection between the value of labor and the minimum wage.

RELATED: Earlier posts on Seattle and the minimum wage.


San Francisco raises minimum wage, kills beloved local bookstore, residents shocked

February 8, 2015
Didn't pay attention

Didn’t pay attention

Call it a “teachable moment?”

Due to the new increased minimum wage law in San Francisco, a beloved bookstore and mainstay of the Mission District has been forced to close its doors for good.

The minimum wage for San Francisco workers, currently at $11.05 an hour, soars to $15 an hour in July 2018. The store’s projected labor costs, reported ABC7 News, impelled Borderlands Bookstore to write its final chapter.

The store owner had this to say:

In November, San Francisco voters overwhelmingly passed a measure that will increase the minimum wage within the city to $15 per hour by 2018. Although all of us at Borderlands support the concept of a living wage in principal and we believe that it’s possible that the new law will be good for San Francisco — Borderlands Books as it exists is not a financially viable business if subject to that minimum wage. Consequently we will be closing our doors no later than March 31st.

But the best line came from one of the stunned customers:

“You know, I voted for the measure as well, the minimum wage measure,” customer Edward Vallecillo lamented. “It’s not something that I thought would affect certain specific small businesses. I feel sad.”

Evidently Mr. Vallecillo and the other voters of the Special City were asleep during their economics lessons — assuming that’s even taught anymore. Let’s review, shall we?

Labor is a cost, because the business owner has to provide wages and, often, benefits that cost him more money. When a government mandate increases that cost, the business owner has three choices: pass the cost along to the customer, who may decide it’s too much and stop shopping there; cut employee hours and stop hiring to save on labor costs, thus costing potential jobs and putting a burden on workers still employed; and, finally, just decide it’s not worth it anymore and close up shop. In the low-margin bookseller business, Borderlands’ owner chose the last course as the only one viable.

(Aside: It wouldn’t surprise me if one of the Leftists on the San Francisco Board of Supervisors is considering a bill to prevent owners from doing just that. Can’t let the Kulaks get away with acting as if they own their own property, after all.)

In a functioning, literate polity that teaches its young fundamental lessons of civics and economics, an informed electorate could have looked at that proposal and said, “Nah, that’s going too far.” Instead, we have voters who feel good about themselves  for voting themselves more consequence-free stuff, and then feel sad when the consequences arrive.

Maybe they’ll learn something from the experience.

Nah.

RELATED: This isn’t the first time we’ve seen the consequences of ill-thought policy regarding the minimum wage. Seattle voted a high minimum, and now businesses are considering leaving. Some companies are considering replacing now-expensive minimum-wage workers with computerized kiosks. Los Angeles wants to raise the minimum to $13.25. Can’t wait to see how many entry-level jobs are lost thanks to that, or how many low-skill young workers looking for their first job are priced out of the market because of it. More from Ron Radosh, and more posts on the minimum wage.

(Crossposted at Sister Toldjah)


Sweet, sweet schadenfreude: Harvard faculty who championed #Obamacare angry for being subject to Obamacare

January 5, 2015
"Another Obamacare supporter learns the truth."

“Another Obamacare supporter learns the truth.”

Via Charles Cooke, this is too delicious for words:

For years, Harvard’s experts on health economics and policy have advised presidents and Congress on how to provide health benefits to the nation at a reasonable cost. But those remedies will now be applied to the Harvard faculty, and the professors are in an uproar.

Members of the Faculty of Arts and Sciences, the heart of the 378-year-old university, voted overwhelmingly in November to oppose changes that would require them and thousands of other Harvard employees to pay more for health care. The university says the increases are in part a result of the Obama administration’s Affordable Care Act, which many Harvard professors championed.

The faculty vote came too late to stop the cost increases from taking effect this month, and the anger on campus remains focused on questions that are agitating many workplaces: How should the burden of health costs be shared by employers and employees? If employees have to bear more of the cost, will they skimp on medically necessary care, curtail the use of less valuable services, or both?

What’s the old saying? “Be careful what you wish for; you might get it!”

Thomas Sowell has observed that the problem with letting government regulate so much is that the regulators seldom have to live with the consequences of their decisions. It’s the ordinary people who suffer. The same can be said for academics at Harvard (and other universities): state-run healthcare sounds great in theory –the libraries are full of books and articles endorsing it, as well as the conversation in faculty lounges– but make them live by the rules they advocated and they scream “UNFAIR!!”

What they’re being asked to do, of course, is what many of us already do: pay an increased but still small portion of their healthcare costs, which are going up for the university. This, in turn has caused a ruckus, though Harvard argues that provisions of the Affordable Care Act for them to take these steps:

In Harvard’s health care enrollment guide for 2015, the university said it “must respond to the national trend of rising health care costs, including some driven by health care reform,” otherwise known as the Affordable Care Act. The guide said that Harvard faced “added costs” because of provisions in the health care law that extend coverage for children up to age 26, offer free preventive services like mammograms and colonoscopies and, starting in 2018, add a tax on high-cost insurance, known as the Cadillac tax.

The quoted complaints are a treat, too:

Richard F. Thomas, a Harvard professor of classics and one of the world’s leading authorities on Virgil, called the changes “deplorable, deeply regressive, a sign of the corporatization of the university.”

Mary D. Lewis, a professor who specializes in the history of modern France and has led opposition to the benefit changes, said they were tantamount to a pay cut. “Moreover,” she said, “this pay cut will be timed to come at precisely the moment when you are sick, stressed or facing the challenges of being a new parent.”

You should take them seriously, because PhD’s in Classics and History are experts in the economics of health care. Apparently they need a refresher in one of the basic rules of economics: When you increase a business or other institution’s cost, it will deal with it in one of four ways. It will cease operation, deciding the expenses are too great; it will absorb the cost; it offset the cost by reducing other expenses; or it will offset the cost by passing all or a portion of it to the consumer. Harvard has chosen this last option. What, really, did these degree-bearing men and women expect?

I know, I know. A continued ride on the gravy train, because they’re educators, damn it!

On the other hand, Professor Lewis is right: this is tantamount to a pay cut, something many of us have experienced thanks to the skyrocketing premiums and massively increased deductibles under our new “affordable” system.

Why should Ivy League academics be exempt?

Congratulations, folks! You got what you asked for!

smiley popcorn

 


The Final Nail in the Keynesian Coffin?

December 22, 2014

Phineas Fahrquar:

One can only hope. Although, to be fair, Keynes himself would probably criticize the way his acolytes apply his theories.

Originally posted on International Liberty:

I wrote earlier this year about the “perplexing durability” of Keynesian economics. And I didn’t mince words.

Keynesian economics is a failure. It didn’t work for Hoover and Roosevelt in the 1930s. It didn’t work for Japan in the 1990s. And it didn’t work for Bush or Obama in recent years. No matter where’s it’s been tried, it’s been a flop. So why, whenever there’s a downturn, do politicians resuscitate the idea that bigger government will “stimulate” the economy?

And I specifically challenged Keynesians in 2013 to explain why automatic budget cuts were supposedly a bad idea given that the American economy expanded when the burden of government spending shrank during the Reagan and Clinton years.

I also issued that same challenge one day earlier, asking Keynesians to justify their opposition to sequestration given that Canada’s economy prospered in the 1990s…

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Shocker: #Obamacare not shielding consumers from costs

December 1, 2014
"Obamacare has arrived"

“Obamacare has arrived”

There’s an interesting article at Hot Air in which Ed Morrissey interprets the results of a Gallup survey that, contra the intentions of Obamacare’s author’s, many people are still putting off medical care, including for serious conditions, because of cost. Bear in mind that one of the goals of the new system was to keep people from having to make choices about their care based on cost. Instead, in some demographics, the numbers of those putting off care has gone up:

However, the percentage of those who put off care due to cost issues actually rose among those with private insurance — by almost double digits, in fact:

“Among Americans with varying types of medical coverage (including no coverage), uninsured Americans are still the most likely to report having put off medical treatment because of cost. More than half of the uninsured (57%) have put off treatment, compared with 34% with private insurance and 22% with Medicare or Medicaid. However, the percentage of Americans with private health insurance who report putting off medical treatment because of cost has increased from 25% in 2013 to 34% in 2014.”

(Emphasis added)

Now, why is this? Ed offers some speculations:

There are a few possible reasons, with the truth probably in combination of some:

  • The so-called recovery isn’t actually boosting workers the way Democrats claim.
  • Forced carriage of health insurance takes too big of a bite out of workers’ disposable income.
  • The health insurance that consumers get has too large of a deductible for the affordable premiums, or …
  • … it has inadequate coverage for the conditions, while the premiums make it impossible to get treatment on their own.
  • Reimbursement rates and narrowed provider choices make it difficult to get treatment.

I’d say the third and fifth in the list are the big reasons for people who already have private insurance are putting off care. Search through the Obamacare archives here and you’ll find reports of sky-high deductibles that make the “affordable” premiums laughable, and newly-limited networks forcing people to pay through the nose if they want to get treatment that used to be covered, or to see the doctor they preferred (1), who now isn’t in their network. (If they’ll take your insurance at all.)

This is another example of why, assuming they can come up with a workable replacement, the Republicans will be able to repeal Obamacare in 2017, unlike other entitlements: it has become a giant pain in the tuchus for millions of people (most of whom never wanted it anyway), and they will demand that the Republican congress and new Republican (I hope) president make that pain go away.

Footnote:
(1) Per the President’s promise, repeated ad nauseam over the course of several years. People remember that, just as they remember the senators who helped sell them that bill of goods. Just ask the (former) Democrat senators who had to run for reelection in the last midterms.


#Ferguson: How about justice for these victims?

November 25, 2014

Somebody want to explain to me what Natalie DuBose did to deserve having her hopes and dreams burned to the ground?

Per PJMedia:

One of those businesses was a cake store, Cakes and More, owned by Natalie DuBose. DuBose sold cakes at flea markets while she saved up to open up her own store so she could feed her kids and succeed.

She did succeed, only to have the rioters destroy her business among the nearly three dozen businesses that were looted or burned or both.

Another that I heard about was a Little Caesar’s pizza place. Mostly likely a franchise operation. In other words, a small businessman or businesswoman. Now it’s gone, burned to the ground, along with the jobs it provided. Vandals and thieves laying to waste what took years to build. This is “justice?”

Will any of the race-panderers in the Congressional Black Caucus call for justice for Natalie DuBose and the other small business people harmed last night by the rioters?

No, I’m not holding my breath.

PS: An update on Ms. DuBose. She show far more generosity of spirit than I’d likely be able to manage.


The Overwhelming Case against Capital Gains Taxation

November 2, 2014

Phineas Fahrquar:

How we shoot ourselves in the foot through the punitive taxation of capital gains. In the end, it hurts working people.

Originally posted on International Liberty:

According to the bean counters at Ernst and Young, the United States has one of the highest capital gains tax rates in the world.

But if you don’t trust the numbers from a big accounting firm, then you can peruse a study from the pro-tax Organization for Economic Cooperation and Development that reaches the same conclusion.

But does this really matter? Is the United States harmed by having a high tax rate?

The Wall Street Journal certainly makes a compelling case that high tax rates on capital gains are self-destructive.

And this remarkable chart shows that workers are victimized when there is less investment.

Let’s add to all this evidence.

Jason Clemens, Charles Lammam, and Matthew Lo have produced a thorough study for the Fraser Institute about the economic impact of capital gains taxation.

A capital gain (or loss) generally refers to the price of an asset when it is…

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