The Chicago Tribune alerts me to news in Illinois to improve the situation surrounding a topic I alluded to a few months ago - gerrymandering. Gerrymandering allows back room political deals to control political borders that protect special interests and their politician tools. The Tribune's John Chase writes:
"Advocates trying to change the way Illinois political maps are drawn began the arduous process today of trying to prove they have enough signatures to get a constitutional amendment placed on the ballot this November."
Evidently there is some controversy regarding how much time has been allowed for the initiative sponsor to correct what the elections committee has provisionally declared to be invalid signatures. Maybe not surprising that agents of the state would try to roadblock the reform of one of the tools politicos use to remain in power, so I became interested in the organization sponsoring the amendment - "Yes! for independent Maps."
I support change that tends to reduce the concentrations of power, power that allows politicians to more easily entrench, but we have seen many cases where promises to reduce the scope of government led instead to even more of it (e.g. the Reagan presidency). So the actual conditions of the proposed amendment are of some interest.
The Tribune gives a fair summary, but the few additional details in the amendment wording might be worth analyzing in greater detail. To that end, here are the few sentences that describe how district boundaries are intended to be established:
Legislative Districts shall be contiguous and substantially equal in population. Representative Districts shall be contiguous and substantially equal in population.The district plan shall comply with federal law.
Hard to find any fault with this statement; one would expect a republican form of government might make these districts target equal numbers of people. To "comply with federal law" might be redundant given the primacy clause.
Subject to the foregoing, the Commission shall apply the following criteria: (1) the district plan shall not dilute or diminish the ability of a racial or language minority community to elect the candidates of its choice, including when voting in concert with other persons;
Much might get hidden in these words over time - I think the basis of presumed community has often been used to justify the salamanderish routing of political boundaries that maintain the power of one or another interest group. The final clause could be interpreted to restrict such ability - we are not any of us only one thing, or only some other thing like "white" or "black", "worker" or "entrepreneur," "mod" or "rocker", and to that degree will often or always align vote "in concert with other persons."
(2) districts shall respect the geographic integrity of units of local government;(3) districts shall respect the geographic integrity of communities sharing common social and economic interests, which do not include relationships with political parties or candidates for office; and
These clauses might be aiming to throw a bone to local politicos, and people aiming to manipulate this amendment could twist the notion of "common social and economic interests" into pretty much current status quo. But I like the final clause, and the wording should make this the dominant clause as it controls and limits the others. I am concerned with the looseness of the word "relationship", but in this context it might serve to expand the range of meaning and make it more difficult for political interests to sneak in.
(4) the district plan shall not either purposefully or significantly discriminate against or favor any political party or group.
This wording might also be interpreted to maintain current interests, in as much as any reduction of the currently twisted system would diminish the power of office holders of any political party. But the wording seems careful, maybe intending to avoid that sort of interpretation. It seems that proving actual favor to a political party or group would be fairly easy to accomplish, which as a low bar would make it possible for small groups of determined plaintiffs to challenge any particular plan. That, in turn, would encourage the planners to take pains to avoid even the appearance of impropriety. There are features of the planner selection, and process transparency, which also encourage compliance with what seems like the spirit of this amendment; perhaps I will describe those in a future posting.
In designing the district plan, the Commission shall consider party registration and voting history data only to assess compliance with the foregoing criteria, and shall not consider the residence of any person.
This clause would be difficult to verify, as we can't with certainty tell what some person is considering when they make recommendations or decide on voting alternatives. But it should be possible to perform statistical analyses of the plan as compared to the voting history and residence, which would expose the obvious violations - we should expect no statistical correlation, as any violation of that would strongly imply a bias introduced by the people involved in the process, given that the process is performed by human beings.
Which segues into an outline for a further improvement to settling voting borders (short of getting rid of them completely, a subject for another future post). Such improvement could be an impersonal algorithm driven by population density and equal population-weighted geometric paths. Picture a map that highlights population density, where islands of high population density rise above the ground surface, like skyscrapers climb over a city. Across a given state, areas around cities would appear higher in this view, and those points would serve as the centroids of the districts - the highest N points in population density corresponding to the population centers of the N districts. The area through which population is averaged will make a difference in the implementation, but could be chosen on the basis of the largest computation size that would still differentiate among N peaks, and once established on even a random basis would thereafter be relatively unbiased. Note that the population averaging size that is used to determine the N centroids need not be the same (and most likely would not be the same) as that required for the districting plan.
Once the N points are established, one projects from each point in all directions at a rate proportional to equal population density, until each cell touches one other cell in each direction, which should be the population mid-point along each line between the N points. If any islands arise with population through this method being substantially different than that of the other islands, then reduce the population averaging size.
In my catalog of feasible and defensible steps to reduce the power of the state, devolving existing power to lower levels of government ranks right up there. Depending on the abomination, power dispersal can be preferable to continuing some larger scale awfulness prosecuted in the name of the public interest. At least when we disperse power, the local community has a greater chance of reduction or repeal of the intervention, although I grant that a determined minority can still impose their will in a smaller community. Diverse local control also makes it easier for the community to re-locate to more live and let live political environments.
But it might also matter the issue - while State governments have their own military forces, they don't execute an adversarial foreign policy, and restrictions on state power is generally a good thing, so I support constitutional limits on federal power to wage war.
On the other hand, developments around the minimum wage might lead to a tricky balance between these strategies. According to The Seattle Times, an organization linked by the ST's Lynn Thompson to persistent initiative sponsor Tim Eyman, has recently proposed an initiative that would bring all power to set minimum wage to the State (see number 1358 at that link, title issued 6/2/2014), rather than allow local jurisdictions such as Sea-Tac and Seattle to exercise this type of wage and price control. I-1358 would also revert the local initiatives to the prior condition of State control of minimum wage. The expectation is that since such a high minimum wage as passed the Seattle City Council has not become state legislation, the new $15 mandate would essentially by voided here.
It is a Faustian bargain to deliver such power into the hands of State government - the power to give what you want is equal to take what you have, when political winds run afoul. Imagine the far greater damage to people's lives if a $15/hour limit kept tens of thousands of people from being allowed to work across all of Washington, rather than fewer people affected by more concentrated damage done to workers in the I-5 corridor around Seattle and Sea-Tac. So while I am on record in opposition to increasing the minimum wage (e.g. here, here, here), I have reservations about supporting Initiative 1358.
On the plus side, there is continuing local opposition to forced unemployment. Forward Seattle has proposed to amend the Seattle city charter in effect to increase the minimum wage to the merely horrendous $12.50 rather than $15, to reduce rather than avoid the harm. The ST notes:
Kathrina Tugadi, owner of a restaurant and a club in north Seattle, said the group is concerned that small business won’t be able to survive the jump to $15 an hour. She also is concerned about the uneven phase-in, with some large businesses required to pay $15 in three years, while small businesses have seven years.
It's strange when major media outlets such as the ST don't follow up on the implications of that concern.
I can understand that some people don't think much deeper than the surface - Will Hutton at the Guardian/Observer doesn't blink at such economic considerations. That working for less than $15/hour makes it hard to afford nice toys is almost the defining characteristic of poverty, but Mr Hutton and others are unconcerned that working not at all might not be a preferable state of affairs.
The end of a business means the end of all it's jobs, even those that already pay $15/hour or more.
I am not hopeful for the prospects of local unskilled labor as the Seattle city council prepares to vote on increasing the minimum wage in this city.
There were $15Now petitioners hawking the proposal down at Folk Life this weekend - I came upon one on Saturday as I waited in line for food at one of the vendors. "Why would I want to throw a bunch of people out of work?" "do you think these food vendors would sell as much food if their prices were mandated to be 50% higher?" "why do you think there won't be less labor employed when their prices are mandated higher?"
The story is told in the Seattle Times today. I follow with quotes from the story, interspersed with my commentary:
A special committee of the Seattle City Council on Thursday unanimously approved a $15 minimum wage ordinance, setting the stage for a historic vote Monday by the full council.
A unanimous vote could hardly be surprising news, given that the special committee was stacked with people who are willing to close their eyes to the prospect of putting their fellow citizens out of work.
Despite having several of her proposed amendments voted down, including a speeded-up timeline to reach $15, Councilmember Kshama Sawant declared victory on the steps of City Hall after the committee vote. “Today is a historic day for low-wage workers, for the labor movement, and for anyone who believes, as I do, that no one who works should have to live in poverty,” Sawant said.
I guess the strict parsing of Sawant's remark would be an honest appraisal of the outcome of her proposals. We just need to see who it is that ends up still in the ranks of the employed after these proposals are implemented.
Several members of the mayor’s Income Inequality Advisory Committee urged council members to not weaken their proposal. Pramila Jayapal, an immigrant-rights advocate and candidate for state Senate, called the mayor’s plan the result of “principled compromises and excruciating trade-offs.” David Freiboth, executive secretary of the King County Labor Council, was more blunt, saying the mayor’s committee would have adopted a training wage “over my dead body.”
Freiboth's remark is interesting, coming as it does from a representative of one of the sociological forces that first used minimum wage legislation to protect their own positions from competition. I don't imagine that very many of the people represented through the KCLC will be subject to losing their jobs at the $15 rate - their wages are already higher than that. Potential competitors, though, people who might be willing to provide a good service at wage rates less than $15/hour, will be forbidden from such competition. Even worse, people whose skills are inadequate to justify a wage as high as $15/hour will be forced into unemployment.
Several owners of Subway franchises complained to the council that they were being treated as large businesses under the ordinance even though they ran a single store and had fewer than 10 employees. “I’m not McDonald's. I’m not a wealthy franchiser. I’m not Subway. I pay them for the use of the name. That’s it,” said Matthew Hollek, who runs a Subway store in Ballard.
Yep. Expect more than a few of these businesses to go under in the next couple years.
Council members agreed to delay the start date for the phased-in wage increase from January 1 to April 1 to give businesses more time to plan for the change. They also voted to give the city discretion to set lower minimum wages for minors and for apprentice and training programs.. ... 15 Now is gathering signatures for a charter amendment that imposes a Jan. 1 date for businesses with more than 250 workers to start paying $15 an hour and a three-year phase-in for smaller businesses. Activists at Thursday’s hearing attempted to turn in to the City Council 10,000 signatures of the 30,000 they need to place the measure on the ballot. When Clark told them the petitions needed to go to the City Clerk, the crowd started chanting, “What do we want? 15! When do we want it? Now!”
It would almost be better to get the new wage floor imposed rapidly, since that would provide the most clear demonstration of the effects that it will have on employment. Perhaps some people would learn a lesson from the experience, but the practical effects will be faced by the thousands of people no longer working after these wage rates are implemented.
Sawant also objected to allowing the city to set a lower minimum wage for minors and for training and apprentice programs. She said young people, particularly immigrants, are increasingly asked to help support their families and shouldn’t be paid less. She said lower youth wages also encourages businesses to skirt the higher wage requirements for adults. But Harrell argued that teens would have a better chance to get a job if employers could offer them slightly lower wages. The training wage provision also passed 4-3, with Sawant, O’Brien and Bagshaw voting no.
I confess that it is difficult to fathom the logic of someone who allows for the chance that high minimum wages can effect youth employment prospects, but not have a similar effect on the prospects for adults.
The council also approved a resolution calling for an audit of the new minimum wage proposals after two and four years to determine the impacts on business, employment and compliance. The resolution also recommends the creation of a Minimum Wage Commission to oversee the implementation of the new law.
This was a question I started the evening asking myself - what might the city do to track the actual effects of this wage mandate. How might they seek to understand the wreckage imposed on people's lives, people who are first thrown out of work, and then forbidden from future employment within the city. The answer is an audit, details to be determined. Who knows, the localized nature of the measure may make a good case study to add to the broad existing understanding of the detrimental effects of minimum wage legislation.
President Barack Obama sought Friday [3/21] to assure leading Internet and tech executives that his administration is committed to protecting people's privacy, a week before a self-imposed deadline for a review of National Security Agency programs. ... "The president reiterated his administration's commitment to taking steps that can give people greater confidence that their rights are being protected while preserving important tools that keep us safe," the White House said in a statement.
As with all other aspects of internet security, this is one step among many.
The Seattle City Council appears predisposed to attempt raising the minimum wage to as high as $15 per hour (currently at $9.19 in Washington). The agenda planned for a council meeting on Tuesday (3/18) has an hour dedicated to presentations by supporters, and 20 minutes reserved for comments; no time allowed for opponents of such a measure.
A. Call to Order
B. Items of Business
1. Presentations by Organizations Supportive of Raising the City's Minimum Wage to $15.
Presenters: Jess Spear, $15NOW; Sejal Parikh, Working Washington's Good Jobs Seattle Campaign; Rebecca Smith, National Employment Law Project; Nicole Vallestero Keenan, Puget Sound SAGE (60 minutes)
C. Public Comment (20 minutes)
I don't need to guess about what the $15NOW people might have to say - a recent Seattle Times report (3/11/2014, Lynn Thompson) gives examples of their rhetoric
“Won’t increasing the minimum wage be a ‘job killer?’ ” asks one of the handwritten queries. The suggested response, drafted by participants at a February organizing meeting, reads, “Let’s remember, it was the blatant greed and criminality of Wall Street and Corporate America that crashed the economy in 2008 — not low-wage workers. The policies of big business have been the real ‘job killers.’ ”
A non-sequitur such as this would not stand up in rational discourse, but can easily fill up time during a city council meeting, especially when the $15NOW claim about the 2008 crash is itself so riddled with misconception as to distract attention from the fact that $15NOW and their ilk appear to not care that increasing the minimum wage will indeed lead to job losses.
The activists reject the idea of a phased-in measure. They reject the idea of counting tips or other forms of compensation, such as health-care benefits, in lieu of higher hourly pay. As the name suggests, they want $15 an hour and they want it now. “Our goal is to get a win for workers in 2014,” said Jess Spear, organizing director for 15 Now and a former Sawant campaign worker. “We’re building a mass movement as a strategy to get that done.”
As with other promoters, Jess Spear and the $15NOW activists evidently feel entitled to play with people's livelihoods. The CBO predicted half a million people will lose their jobs across the USA if the federal minimum wage is increased to $10.10 - I can scarcely imagine what promoters of a $15 minimum in Seattle can be thinking will keep even greater damage from being concentrated in Seattle with a 50% larger mandate. On the darker side of democracy being when the common people know what they want, rejecting a phased-in measure would at least make the connection to job loss more obvious, as the sudden shock to business would be that much harder to compensate. But to claim a "win for workers" with this measure needs to add the word "some", because many workers will be lose out big time if this passes, which will be a tragedy.
Another group supporting 15 Now is Casa Latina, a nonprofit that organizes and runs a hiring hall for day laborers and domestic workers. The group’s worker committee voted in 2013 to raise the hourly wage it charges to $15.
Sadly, while the connection between minimum wage and availability of work is not that difficult a concept, there seems to be a willful ignorance among the people who support increasing it. The connection between higher prices and reduced demand is so ubiquitous that they are missing what is all around them, missing even their own purchase of goods and services, of how they buy less of something when the price is higher. How can they fail to see how a 50% mandated increase to the price of unskilled labor will lead to less employment?
I am not hopeful for the fate of unskilled labor in Seattle - the local pols are stacking the deck for making a large increase to the minimum wage, and naysayers don't have much of a voice. As one member states - “If I were against $15, I wouldn’t be on the mayor’s committee”
One of the expressions I found to be memorable among the words of Harry Browne is "monument to vanity", which he used to characterize how politicos of various stripes squander the public purse on buildings, statues, and other fabrications that they hope will outlast their time in office.
Michael Madigan, speaker of the house of the legislature in Illinois, provides a recent illustration of this phenomenon. The Chicago Tribune reports (3/4/2014) that Madigan and his fellow legislator Monique Davis want to spend $100 million in taxpayer funds to subsidize a library of records from current US President Barack Obama.
It is ironic to build a library to commemorate a President who has set new standards for secrecy while in office. For other examples, see numbers 22, 25, 26, 42, 65, 67, 77, and others in this listing of abuses.
The etymology of "privilege" is helpful to consider as a framework for political economy - privus+lex = private law, "a special right, advantage, or immunity granted or available only to a particular person or group of people" (thanks, Mr. Google). One of the precepts of fairness that I value is equal treatment before the law, so when the law provides for privilege then I start to raise objections. A pity it is not more difficult to find examples, but sometimes there are layers of privilege that cloud the issue.
The Seattle Times reported on legislation recently passed in Washington that seems to put the Tesla motor company in a favored position ("Legislature acts to allow Tesla to sell cars directly"), with the writer Ashley Stewart aiming in the first sentence to make the connection explicit
"Tesla can continue to sell cars directly to customers under amended bills passed in the state House and Senate, but it will be the only car manufacturer with that privilege."
To be clear, this new legislation does seem to put the Tesla company in a favored position as compared to other automobile companies, both current and possible future upstarts, because it allows for more alternatives to be arranged in the purchase and sale agreements made between Tesla Motors and their potential customers. The new rules don't forbid a dealership model such as used by other car companies, so that option remains available to Tesla in addition to the direct sales approach.
To ask why it is that other car companies are not allowed to sell their product directly to consumers starts to expose how the layers of rules obscure who is really in the privileged position. For decades in Washington and elsewhere, the State legislature has made it illegal for car companies to sell directly to the public, has forbidden the option of consumers to negotiate directly with those producers to arrange the most advantageous deal that suits their needs and pocketbook. Instead, car buyers across the country have no other option than to make those deals through the middleman represented by local dealerships.
From here it is not difficult to recognize that those dealerships are the ones given the privilege. They are the ones with the local political connections who legislate guaranteed business arrangements in direct conflict with the interests of the consumer. The politicos claim to protect the poor car buyer from rapacious auto manufacturers, but this is a smokescreen to their collusion with local business owners to restrict competition and keep prices higher than they would otherwise be.
The situation becomes even more obvious when considering whether legislation prohibits consumers of other goods from making purchase directly from the producer - public choice theory and practical observation tells us this happens whereever people think they have a political advantage, but auto dealers are clearly among those given a unique advantage against consumers and other businesses.
The politically supported adversarial relationship between dealers and manufacturers had a part in the recent failure of GM and Chrysler, because those state laws also restrict the ability to close down unprofitable car lines. The dealership sales campaigns are also weirdly convoluted, as described in narrative by This American Life of the challenges in making monthly quotas for a typical dealership, and through this interview by Russ Roberts with the sales manager of a dealership where he recently purchased a car.
Oh, no - "Obama threatens Karzai with total Afghanistan troop withdrawal over security deal delay" - comes a report from Australia, echoed by the AFP here.
Please, please please Mr Karzai, save the people of the United States from continuing this interference - keep up the delays over a security deal. You are better off without US politicos and generals commanding the manner in which you attempt to reconcile the differences in your own population. Get those US troops out of Afghanistan as quickly as you can, be as intransigent as you must.
Somehow the US will survive without the loss of life, loss of treasure, and the increased hatred directed at Americans that has resulted from our misguided attempt to fix the society in which you live.
Maybe an alternative of free trade, without entangling alliances, will promote the gradual restoration of peace and prosperity for all of us.
It seems that Mr. Nick Hanauer is not the only person to take lightly the prospects of condemning people with the least level of skills and abilities to permanent unemployment. The Seattle Times reports that U.S. Senator Patty Murray and WA legislature Representative Suzan DelBene, national and state level politicos who nominally represent some portion of the people of Washington, feel similarly (“Murray, DelBene unfazed by predicted job losses from minimum-wage boost”)
To be clear, this is not just one or two people facing this, but 500,000 Americans who will likely lose their jobs due to raising the Federal minimum wage to $10.10/hour, bearing the brunt of the trade-off in welfare that the likes of Hanauer, Murray, DelBene, and many others consider within their purview to make.
That goes for “Martina Phelps, a 22-year-old McDonald’s employee from Skyway, [who] said a raise would help her be able to afford to go back to school”, cited by Jim Brunner in the ST story. Sure, it might help her go back to school - if it doesn’t put her and hundreds of thousands of other people like her completely out of work in the mean time.
The prospect of increasing the minimum wage is ripe for exploitation by more people than politicians pandering to the economically illiterate. It sounds so good to be in favor of making the poor better off - anyone who disagrees can be painted as a callous troglodyte, while the proponents can wrap themselves in high-sounding rhetoric. But with all the self-righteousness claimed by the promoters comes the self-interest of people who want to protect their established businesses from upstart competition, people who want to make their competitors face an added burden, and politicos willing to play each against the others for the favor of campaign contributions and another few years pulling the strings. This dimension is illustrated by the remarks quoted from ice cream store owner Molly Moon Neitzel - she "is worried the Seattle effort might hurt small businesses like hers. But as for corporate chains – no problem. “McDonald’s could do it tomorrow” - as if businesses at all levels are not constantly faced with the challenge of delivering a product to consumers at a price they think to be a value, as if McDonald's is immune to the pressures that will drive fewer employees, greater work load on remaining employees to compensate for the higher wages, increasing automation, and other means of cost reductions.
The prospect of job losses due to increasing the minimum wage seems all the more likely in Seattle, where the debate surrounds a substantially greater increase in the minimum wage - to $15/hour, a level that has already been imposed in the neighboring Sea-Tac community (“$15 wage floor slowly takes hold in SeaTac”). While that level has been imposed for only a few weeks, the anecdotes are illustrative of what we would expect - here are a few reported in the ST article by Amy Martinez:
“At the Clarion Hotel off International Boulevard, a sit-down restaurant has been shuttered, though it might soon be replaced by a less-labor-intensive cafe"
hmmm... shuttered... maybe to be replaced by a business that operates with fewer employees. How much more clear can the connection be illustrated? Well, don't worry, because ...
"The nearby Cedarbrook Lodge, by contrast, is undergoing a $16 million expansion."
What happens with Cedarbrook Lodge employment remains to be seen, of course, but we might start by observing that forcing that other business to close reduces the competition faced by CL and the other businesses that manage to stay open. Another aspect to this is how many businesses will deliberately stay small to avoid the burden of the minimum wage, futher reducing competition. A third consideration is that expansion is not necessarily one to employ more people, let alone enough to make up for the losses from other businesses. Another possibility is that "expansion" is targeting a more upscale clientele, for whom the level of service might demand the services of people who can already demand wages above the legal minimum.
"Other businesses have adjusted in ways that run the gamut from putting more work in the hands of managers, to instituting a small “living-wage surcharge” for a daily parking space near the airport. ... The new surcharge of 50 cents a day at MasterPark in SeaTac is an attempt to recoup some costs of the $15 minimum wage, said managing partner Roger McCracken. He said he also is considering cuts to MasterPark’s advertising budget, but he called layoffs “foolish” and rejected the notion that cashiers soon would be replaced by automation.”
In other words, the nature of the work and compensation will be changing for people to remain employed at the higher rates. Benefits that used to be provided as part of the employment arrangement will now be an expense levied on the employees. People at all levels of the organization will be working harder. Related businesses that provide accessory services in the overall structure of production will have reduced demand, putting pressure on their profitability and consequently employment.
"Meanwhile, workers are flocking to SeaTac to apply for minimum-wage jobs, and recipients of the mandatory pay raise say they’re enjoying the freedom of having extra money to spend or save."
No doubt they are, except for the people who have already lost their jobs. The people who lose their jobs in the coming months will less clearly see the connection. Those who are never hired at all will just be lost. My pessimistic streak makes me think that the responsible people - Nick Hanauer, Patty Murray, Suzan DelBene, and their ilk - will deflect their responsibility for this disaster and be off on a new crusade to make it all better with a new pronouncement to restrict how the rest of us make our way in this world.
Last summer I wrote briefly on the minimum wage in the context of my critique of a few of the candidates for Mayor of Seattle in the 2013 local election season. The minimum wage continues to make the national news (such as this Planet Money podcast, and as the UPI reports here), and appears recently in The Seattle Times report by Jim Brunner ("Seattle 1-percenter a leader in push for $15 minimum wage", 2/15/2014).
Brunner's report focuses on the person of Nick Hanauer, someone who managed to take earnings from his family business and make a few bucks through shrewd investments in Amazon and other companies. With a lot of money and some time to spare, Hanauer has engaged in politics, writing and public speaking in favor of increasing the minimum wage. I am taking this opportunity to raise some questions about the few points Hanauer makes surrounding the economics of such a change.
To begin with is this remark from the story:
Hanauer: “Prosperity isn’t something that squirts out of rich people.” It’s a result of policies that boost the wages of average workers.
The wage level is a very limited perspective on the nature of prosperity, and simply wrong to the extent that such a statement ignores purchasing power of those wages. Prosperity is measured in terms of value of those wages as compared to real goods and services actually available for consumption. We could have extremely high dollar wages, but our level of prosperity reduces to the extent that the value of the dollar falls in respect to our consumption demands. Prosperity is not wages - in our search for goods and services to satisfy our individual wants and desires, we are made better off to obtain more with less, to get more value for our dollars. Where public policy is concerned, the advancement of prosperity should be concerned with removing obstacles to production.
Hanauer made his name in the family pillow business before striking it rich as an early investor in Amazon. Now more interested in public policy than making money, he spends much of his time researching, writing and talking about income inequality. And his ideas have penetrated deep into Democratic politics. “This is my world, I know a lot of these folks,” Hanauer said in an appearance on MSNBC last week. “These are borderline sociopathic people, and they don’t care about other people and they have no empathy.”
I don't know the people he is referring to , but hope Hanauer does not extend that uncharitable characterization to everyone who disagrees with him. Too bad that the minimum wage policy that he promotes condemns the least well off segment of the population to permanent unemployment.
The idea even horrifies the CEO of Hanauer’s family pillow business. “If someone were to force me to move the base wage in our manufacturing organizations to $15 an hour, we will be out of business in six months. Period,” said Joe Crawford, CEO of Seattle-based Pacific Coast Feather. ... Critics of raising the minimum wage — even his own CEO — fail to see the big picture, Hanauer says. If all workers receive higher wages, they’ll have more money to spend — and they’d spend some of it on pillows. A federal $15-an-hour minimum wage would lead to $450 billion in additional consumer spending a year, he estimates.
Hanauer is guilty here of the broken window fallacy - the idea that the community is better off when property is destroyed because it triggers a series of productive activities to restore the damage, which fails to recognize the alternative efforts which would have been performed in the absence of the original loss. His statement also reveals that even reasonably smart people can fail to appreciate the unseen behaviors of their neighbors and fellow citizens.
An increase in production costs results when the state imposes a minimum wage. That increase is seen by consumers, some of whom will hold back from acquiring the more expensive good; those people are less well off, because their preferences are not being satisfied as effectively. Those who continue to purchase at the now-higher price level thereby have less money remaining to spend on other things that they also desire. Both conditions lead to reduction in demand, less production and correspondingly a less well off community.
The low wage workers, people who are nominally targeted to an improved state, are also made worse off by the higher prices because they have less disposable income. A defining feature of the industrial revolution, which continues to this day, is the notion of mass production - production for the masses. Textile mills in the 19th Century weren't providing lace and silks for the landed gentry, they were making inexpensive fabrics available for putting clothes on the backs of everyone. The mass of production is what makes goods inexpensive and broadly available to all segments of the population, which effect has been to raise the standard of living of even the poorest of us to levels never dreamed of in generations past. Making increasingly efficient use of all the factors of production - capital, land, and labor - in all areas of our society, is the cause behind that advancing living standard.
Consumers in all economic classes are not the only people who are hurt by such policy - the load bears directly and heavily on those people who's knowledge, skills, and abilities and not sufficient to trade their potential contribution to the goods and services that consumers find of value at the prices offered. Those people lose their jobs, or are not offered any work in the first place, and are condemned to poverty or to living on the dole, when at a lower wage they could be making a valuable contribution.
When pressed, Hanauer acknowledges that quickly raising the minimum wage that high could be problematic for some companies. That’s why the task force he’s part of is considering phasing in the wage in Seattle and adding exemptions for small businesses. “Do we want to live in a society where people work full time and still have to get government assistance and go on food stamps? Do we want to live in a society that is economically optimized for places like McDonald’s and Wal-Mart?” Hanauer said. Forcing higher wages might harm such companies, he said. “But I would respectfully suggest that if you have a business model that can’t survive without paying people poverty wages, maybe you should go out of business.” Besides, Hanauer noted that taxpayers wind up subsidizing low-wage workers who qualify for food stamps and other government aid.
Phasing in the minimum wage is a convenient approach to hide the job losses that ensue from increasing the wage. Businesses will take time to adapt to the new conditions, but they will find lower priced alternatives or reduce production to a level sustainable at a higher price point, and hope to retain sufficient customers to remain in business. They will reduce employment, or employ greater automation to replace the services formerly provided by those low skilled workers. The phase in time just gives those businesses time to adjust.
The small business exemption is just another way to keep the little guy small and out of the hair of larger companies, as growing beyond the threshold introduces penalties that larger companies may be more able to tolerate. It also reveals a cynical perspective on the whole issue, because if the motivation for raising the minimum wage is some perspective on "fairness", it suddenly becomes less unfair for small business owners to pay lower wages. But there is no economic rule that proclaims only small businesses are operating on thin margins, for whom even small cost increases in critical factors of production can mean the difference between profit and loss, success and failure, a thriving business or a closed up shop window.
The remark to "go out of business" casts him in a self-righteous but cavalier light; evidently, Nick Hanauer doesn't care that the alternative to working at minimum wage is no work at all, no production for the benefit of the community, and reduced living standards for everyone.
Too bad Hanauer doesn't take his vast wealth and ability as "one of the world’s best strategists" to think through a few more of the downstream implications of the minimum wage. Instead it seems like he has a vision, and the world will just have to conform.