The minimum wage debate

So, Congress is all set to raise the minimum wage to $7.25 an hour. Liberals say this is a long overdue raise for poor workers. Conservatives say it will lead to unemployment among the poor. Very few commentators are exploring the issue in any depth, except to reinforce one of those two views. Considering how many economists are part of this debate on both sides, that's a shame.

I'm not an economist, but I do have something to contribute: I have been privy to the balance sheet of a rather large company that does employ minimum wage labor. And I worked at that company through the previous minimum wage increase, so I can tell you how it was dealt with. Then I'll put in my two cents on what a minimum wage increase really means.

Back in the 90s, minimum wage was raised from $4.25 to $5.15, a much lower increase than the current one. How did my company deal? Well, first off, they raised prices. They didn't say it was in response to the minimum wage increase, but they did it at the same time and hadn't significantly raised prices in a few years. Secondly, we had to spend the same percentage of sales on labor as before, even though the wages of many of our workers went up. Now how did we do that? The price increase, alas, didn't increase our overall sales, as it turned off some customers. Tax increases tend to work that way as well, bringing in much less revenue than expected due to decreases in economic activity. So neither government nor business can just with themselves more revenue by decreeing it. So now we had to meet labor targets with higher wage employees and the same level of sales.

What happened? Well, contrary to the doomsaying of conservative commentators, we didn't fire anyone. In fact, I've known a lot of people who have worked for minimum wage or close to it, and never known of anyone who got fired because minimum wage went up and their boss could no longer afford them. But that doesn't mean there were no consequences. We cut back on hours. Everyone got a few less hours, and so their paychecks did not change despite the minimum wage increase. Congress meant to give poor workers a raise, but instead they got more free time.

Ah, but even that is not the whole story. You see, my company, like many large companies, seeks to subvert the bargaining process by not giving managers the power to give better pay to better workers. It's a great example of market failure. Big companies, rather than letting the managers decide how much each employee is worth, simply set wages for job descriptions and give stingy merit raises every six months to a year. After about five years, a good cook can make a whopping 50 cents an hour more than a mediocre cook. That tactic by large corporations helps hold wages down artificially, because there's no one to bargain with. Even if the employee says "Give me a raise or I'm quitting" all the manager can do is throw up his hands. It's out of his control. The guy that sets pay rates is so far up that he doesn't care. He doesn't know who is good and who is mediocre.

So what does that have to do with the minimum wage debate? Well, if minimum wage is raised, then they get the raise they deserved all along but couldn't get because of the strict pay scales of the company. So it benefits good workers who haven't been able to bargain for what they are actually worth. It does hurt poorer workers, because what a manager will do is cut the poor workers hours while leaving the good workers' hours the same, or even increasing them.

So what's my political position on the minimum wage? Really, I'm neutral. On one hand, the value of a product or service cannot be changed by legislation. If someone's labor isn't worth $7.25 an hour, he'll find himself priced out of the market. In that respect, conservatives are 100% right. But then liberals are right that the market is not necessarily efficient in every respect, especially at the micro level. Individuals and companies do different things to try to distort the bargaining process, and this sometimes shows results at the micro level. So many employees who actually are worth more than $7.25/hr are underpaid. So when minimum wage gets raised, they don't get fired or lose hours. It's only the people who aren't worth that much that get priced out. The mistake conservatives make is to assume that everyone makes what they are worth.

To further lengthen this post, that does not mean I subscribe to the idea that you can determine the worth of a worker. I can't say if a CEO is worth $400 million or if a delivery driver is worth $7.25. There is no objective way to measure worth, and I don't think the government should be in the business of trying to. What I can say is how much their services would be worth to me if I was paying for them. So when I say someone is underpaid, I'm referring to the fact that I, as a manager, would be willing to pay them more. So don't jump on me libertarians and conservatives. I'm only pointing out a type of market failure that those who haven't worked as or employed minimum wage labor may not know about.

Freedom in the World 2007

Freedom House has issued it's annual report on freedom in the world. This year was a mixed bag.

46% of the world's population lives in free countries. 37% in countries that are not free.

Longterm, we're still seeing great improvements. In 1996, 79 countries were free, compared to 90 today. There were 53 not free countries in 1996, and only 45 today. So freedom is still on the march, at least in the longterm.

The freest region is Europe. The least free is the Middle East. No big surprises there.

In 1987, there were only 66 democracies. Today there are 123.

Individual countries of note:

Afghanistan, which had the worst rating at 7,7 back in 2001, is now at 5,5.

Haiti is now a 4,5, which is an improvement over last year.

Iraq was 7,7 in 2003, now it's 6,6. Much less progress. Iraq actually took a step back this year.

Russia is 6,5. That's pretty ominous. It's getting worse over there. And that's not the kind of country you want falling back under authoritarianism.

Shapiro on 2008

Ben Shapiro weighs in with his opinions on the 2008 race. I tend to agree with most of what he says, except for that typical conservative blindness when it comes to the Clintons. He says:

For the Democrats, the choice is clearer: It's Sen. Hillary Clinton of New York all the way. Although constant media attention has elevated rookie Sen. Barack Obama of Illinois in the polls, this is part of a broader Democratic strategy to boost Clinton. The Democratic Party believes deeply that the illusion of political momentum for a candidate emerging from the primaries is more important than actual political momentum. To that end, the Democrats dub a challenger every four years. Every four years, they talk about how popular the new kid is. Every four years, the old warhorse, the candidate obscured by the blinding brightness of the hot new star, emerges victorious. In 2000, the hot new thing was Bill Bradley; the old warhorse was Al Gore. In 2004, the hot new thing was Howard Dean; the old warhorse was John Kerry.

In 2008, the hot new thing is Barack Obama; the old warhorse is Hillary Clinton. While everyone focuses on Obamamania, Hillary goes about her business -- shoring up her political contacts, busting her campaign coffers at the seams, lurking in the political background until the time is right. And when it is, Obama will recede, possibly to a second spot on the Democratic ticket.



He's not totally wrong. You could even add the Mondale-Hart race as another example. But that's only a predictor of what Democrats do when they lose. When they win, it's when they went for the younger guy. As a matter of fact, the average age of Democrats who won elections in postwar era is something like 48. So why Democrats would question the experience of their younger candidates, who knows. Those are the guys that actually win.

Also, is Clinton really an old warhorse? Sure, she's aging, but she's not exactly a longtime political fixture. The old warhorse in the party is Biden out of the 2008 contenders.

In any case, Clinton is in second place, behind Edwards, a guy Shapiro didn't even mention. At least in terms of the primaries that matter most.

Latest '08 trial heat polls

Yeah, it's still early, but I love this stuff. So I'm going to bother my two readers with it and anyone else who happens to stumble onto this site. Surprisingly, I seem to get more traffic from '08 Presidential race posts than anything else, mainly because people are searching for news on their favorite candidate.

So let's look at the latest trial heats, courtesy of Investors Business Daily:

John McCain 48, Clinton 41

Looks like McCain still has a comfortable lead over Clinton. Even though it's early, these numbers are actually pretty firm, considering how many voters have already made up their minds about both candidates. I actually think Mccain's margin would be closer to 57-43 in a real election, because most of the undecideds are conservatives who don't trust McCain. Given a real choice, they'll turn out just to stop Clinton.

Rudy Giuliani 48, Clinton 43

Essentially the same race here, although Clinton has typically matched up better against Giuliani than McCain.

Romney 35, Clinton 48

Romney isn't well known, so take this one with a grain of salt. Still, if Clinton is up to 48, that probably means she can count on that 48% against any generic Republican. Which means she can probably beat any generic Republican. All the more reason for Republicans to bite the bullet and nominate McCain or Giuliani.

McCain 48, Obama 36

Obama is better known than Romney, but there are still an awful lot of people who don't know him(about 45% of the electorate). Plus, he's still essentially a blank slate. That being said, beating McCain in a general will be a tall order even for someone as charismatic as Obama. Obama would match up best with a more generic Republican, especially in a year where the Democrats are likely to have momentum.

Giuliani 49, Obama 36

Same as above.

Romney 31, Obama 43

Now this is more like it for Obama, facing a generic Republican. And Romney is doing his best to be a milqetoast Republican for some reason.

McCain 44, Edwards 43

Now this race is a blockbuster if it happens. Edwards matches up the best with McCain out of all the Democrats. The reason for this is simple. Edwards doesn't have Clinton's baggage, and he's not an unknown like Obama. Plus, unlike Clinton and Obama, Edwards is positioning himself as a clear choice compared to McCain. McCain supports free trade. Edwards is a protectionist. McCain wants to cut spending and is a deficit hawk. Edwards believes in more social spending and puts less priority on cutting the deficit. McCain supports the war in Iraq. Edwards regrets his vote and wants us to redeploy our forces. There couldn't be a clearer choice for voters in 2008.

Giuliani 47, Edwards 42

Now this one is interesting. I think the reason Giuliani does better against Edwards than McCain is because he enjoys more solid Republican support than McCain does. Edwards, unlike Clinton, doesn't motivate Republicans to vote against him and some of the more populist types might even vote FOR him. Giuliani probably keeps the base behind him a little better. At least until they find out his views on social issues.

Romney 29, Edwards 53

Even though Romney's unknown, he's just not going to beat Edwards no matter how high his name recognition gets. Edwards has a compelling message and charm out the wazoo. Only the Republican heavyweights(McCain and Giuliani) can beat him. Romney isn't a horrible candidate, but he just doesn't have the Edwards charm and ability to articulate his message.


Conclusions? Well, first, a few very attractive candidates who aren't currently first tier were left out, namely Bill Richardson on the Democratic side and Frank Keating on the Republican side. But that's only natural, considering that those guys are even less well known than Romney at this point and would just get destroyed in these trial heat polls. But those two will be coming on. Jim Gilmore might even start registering by the summer.

Secondly, Edwards has emerged as a juggernaut. He leads in Iowa and South Carolina, so he has to be considered the frontrunner for the Democratic nomination. He also matches up best by far in these electability polls, so that will make him very attractive. It's been a long time since Democrats could look at a candidate they could actually love this early and see him as electable. The Republicans are in the opposite situation: two candidates who would very likely win, but both with heretical views on issues very important to the base.

This is going to be a fun race.

The 90s economy

Liberty Lover has a post up from a few days ago about the 90s economy:

Democrats have been citing the economic growth of the 1990's as a reason to duplicate those policies again. Of course, the policy they want to duplicate are the tax increases in the early 1990's. The tax increases brought down interest rates and allowed consumers and businesses to spend and invest. Not so fast.

So far he's absolutely correct. Liberals have been trying to claim Clinton's success as a vindication of their philosophy of government. The problem is that they cherry-pick his accomoplishments. For example, saying that the tax increase of 1993 was good policy, when a closer look at the 1993 deficit reduction bill shows that there was a dollar of spending cuts for every dollar of tax increases. Liberals don't want to hear about that part, much less repeat it. Moving on:

The problem with this thinking is that it ignores two one-time events during the 1990's. These events drove certain sectors of the economy, artificially increased growth, and would have occurred despite the level of interest rates.


Curiously, it gives all credit to the central planning of the federal government and the Federal Reserve. Still haven't learned.


Those two events were, one, the initial build-out and commercialization of the Internet and, two, the mandatory spending for the Y2K computer system conversion. Both events increased demand for computer hardware and software, communications equipment such as routers, and the technology professionals such as programmers to make it all work.


This PDF from the Bureau of Economic Analysis has lots of useful data. Chart 4 on page 3 shows the outsize spending on Real Nonresidential fixed investment in the entire 1990's and the 1995-1999 five year span in particular compared to previous periods. That five year span is especially important because that's when businesses and governments concentrated on converting their computers for Y2K. That spending was going to occur regardless of other events - their companies and agencies depended on it. Table 3 on page 11 shows the contribution of computer hardware sales to GDP growth.


These files (PDF, Excel) show a condensed view of all the numbers for the years 1990-2005. Table 7 shows GDP growth and its components. Notice the large increases in the 'Durable goods' 'Equipment and software' numbers in the late 1990's. That's where the IT spending shows up.


A normal spending pattern for these products and services would have resulted in slower economic growth.
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Yes, there were many things that happened in the 90s that had nothing to do with the government. Most booms and busts have more to do with private sector trends than what the government is doing. But let's give credit where credit is due. When Bill Clinton entered office in 1993, we had a pretty large deficit. Greenspan told Clinton that the deficit had to be brought under control in order for the Fed to lower interest rates. Clinton did this by putting together a package whose goal was to cut the deficit in half over a period of years(five, if I recall correctly). The package involved about $180 billion in tax increases over that period, and $180 billion in spending cuts. This package signalled to the Fed that the government was finally getting its fiscal house in order, which led to a dropping of interest rates.

In turn, the dropping in interest rates made it easier for businesses and entrepeneurs to borrow money, which led to the huge increase in business investment and startups in the 90s. Interest rates are very important to the economy, and Clinton played a large role in ensuring interest rates went down.

Conservatives and libertarians should give credit where credit is due: by just villifying Clinton, while liberals try to expropriate Clinton's legacy for themselves, conservatives make the mistake they make on a host of issues. They concede the field of debate to only one side. Clinton proved that smaller government is good for the economy. If conservatives would recognize this and trumpet it, then conservatives would win that debate with the public. It should be smaller government that we fight for, not Republican political dominance.

In defense of John McCain

John McCain has been pilloried in many circles, both left and right, for awhile now. Mainly because he's such a big threat. To the right, he has some unacceptable views and thus must be torn down in order to pave the way for a "real" conservative(one who backed Bush 100% presumably). To the left, he's the biggest obstacle to a Democratic victory in 2008, so must be torn down.

The problem for McCain is that he's stupidly giving them ammunition. He's become a bit of a panderbear over the last year, trying to cozy up to the social right and Bush supporters, figuring that the nomination is the hardest battle he'll fight. Then he can just coast to victory in the general election.

Back in 2005, I would have said he was right. He could afford to lose a little bit of the maverick luster because his lead over Democrats in trial heats was just so huge. If he wins all the swing states plus a few blue states, or if he just wins the swing states, he's still President. But if he lost the nomination, he'd either be finished or have to attempt a third-party run(although a McCain-Lieberman 2008 Unity Ticket would be compelling).

But now, he's seeing his approval ratings take some hits and the latest polls show him trailing Edwards and with only a thin lead over Clinton and Obama. All of this effort hasn't helped him in the Republican polls, as he's now consistently trailing Giuliani.

So we agree he's pandering too much. But now it's time for the defense, because there are just way too many attacks on McCain that are completely unjustified.

Let's start with who McCain is: he's a conservative, one of the most conservative members of Congress. Sure, he has a few heretical views on issues like campaign finance reform and immigration, but on the issues that have traditionally mattered most to Republicans, he's a solid conservative. In the eight years of the Reagan administration, McCain opposed him only once: on Lebanon. It wasn't until the 90s that he got a maverick reputation.

Now to the pandering again: McCain has pandered on some issues, no question. But on the issues that are most important to him, he simply won't give ground: Iraq. Campaign Finance reform. Spending. He still opposes ethanol subsidies, something that almost no Presidential candidate dares to do in the age of the Iowa caucuses opening the nominating season. He's doing what a lot of politicians, and even regular joes do: backing off on issues that aren't that important to him and standing firm on the things he thinks are truly important.

Then there's the "Bush hug", something the left just loves to hit McCain on. Look, McCain had to back his party's nominee. Democrats certainly didn't believe that Democrats who backed Lieberman instead of the Democratic nominee were courageous. They thought they were traitorous! If you're in a party, you back the nominee.

Advice to McCain: Just be who you are. Be the McCain of 2000. There's no well-funded Bush in this race. You've got the most money, the most name recognition. You will win the nomination if you just be yourself, and you will absolutely smoke the Democratic nominee in the general election. Continue on the path you're on, and you may be just another old Republican up against a possibly young and vigorous Democratic nominee. You'll be Nixon to Edwards' or Obama's Kennedy. That's not a reflection of your character, Mr. McCain, you are certainly no Nixon. But in order to get elected when you're 72, you have to be special. Right now you're emulating Bob Dole on the campaign trail.

Edwards loses my vote

John Edwards has now stated on two occasions, once in a townhall meeting and once on one of the morning talk shows, that he will place spending priorities above deficit reduction. For me, this is a dealbreaker. I was willing to forgive the class rhetoric. I was willing to forgive the protectionism. I was even willing to forgive the business-bashing. All because the guy was just so darn nice and intelligent and seemed like a uniter despite his divisive rhetoric. But any politician that wants to spend a future generation's money is not going to get my vote.

Edwards' platform is looking way too much like LBJ's for comfort.

Oh, and two posts in one day! When was the last time that happened?

Congratulations are in order Part II

To the Iraqi people, for handing out justice to the man who tormented them for decades. While it doesn't change the fact that Iraq is a mess, at least they are rid of Saddam forever.

Some critics insist that the trial was a farce, that this was a lynching. Nonsense. The trial was at least as solid in terms of due process as the Nuremburg trials. And no, neither were as sound as your average American criminal trial, but they are good enough under international norms.

Then there's the complaints that Saddam was executed illegally, based on a technicality that no executions are supposed to take place just before Eid. Look, folks, Iraq is not a western democracy. At best, it's a third world banana republic at this point. The fact that Saddam even got a trial where he was essentially allowed to rant and rave whenever he pleased and intimidate witnesses is more than most other dictators would get when overthrown. Ceaucescu didn't have it that good.