Economic Theory: Science or Scam?

Noah Smith, a smart financial writer with a very good blog, wrote an article on the $15 minimum wage at Bloomberg earlier this week. The piece celebrated the fact that, finally, we’ll have some data on how the $15 minimum wage would affect jobs. Smith said he considered it a test because in theory “a higher minimum wage should cause increased unemployment.”

The more I thought about it, the less sense this premise made. Noah’s article underscored two big things for me: first, the degree to which people see the evidence they want to see, and also how silly the idea of “economic theory” can be. Smith claims that we don’t know what the result of a $15 minimum wage will be. Will it kill jobs or not?  But the truth is, there’s abundant and overwhelming evidence that this theory is wrong, and that higher minimum wages don’t hurt employment. The evidence is there; you just have to choose to see it.

Let’s just look in my own back yard for an example of that evidence. Washington State has had the highest minimum wage in the nation for several years—at $9.47, it’s a full 30 percent more than the federal minimum of $7.25. Washington’s unemployment rate of 5.5 percent isn’t the best in the country, but it’s not the worst, either. In fact, it perfectly matches the national rate. But Seattle was until recently the fastest growing big city in the country. And speaking of evidence, the first part of the $15 minimum wage rollout was successfully implemented in April, and unemployment in our county promptly plummeted to 3.3 percent.

An even more dramatic example of the goofiness of this so-called “economic theory” is the impact of the wages of tipped workers on the restaurant industry. In Washington, these workers earn at least $9.47 plus tips, a whopping 440 percent more than the federal tipped minimum of $2.13 plus tips. Despite the predictions of “economic theory,” and despite the warnings from the National Restaurant Association that eliminating the tip credit would cause food armageddon, Seattle has one of the most robust restaurant scenes in the USA. Why? Because when restaurants pay restaurant workers enough so that even they can afford to eat in restaurants, it’s really good for the restaurant business. If economic “theory” were correct, if paying workers more resulted in higher unemployment, we would have no restaurants in Seattle.

Everywhere you care to look, you can find examples of high-wage places with low unemployment, and low-wage places with high unemployment. Seattle and San Francisco, cities with the highest minimum wage in the country, have low unemployment and among the fastest rate of small business job growth in the nation. Mississippi, where the minimum wage remains at the federally mandated $7.25 an hour, has a high unemployment rate of 7 percent, far above the national rate. In the overwhelming majority of circumstances, the high-wage states and cities enjoy low unemployment while the unemployment rate in low-wage states continues to climb.

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Daily Clips: May 29th, 2015

The rhetoric of economic mobility in the United States
Washington Post – Michael Gerson.

“For both parties,” Michael Gerson states, “the emerging theme of economic mobility is often a reluctant, second choice.”

He further opines, in broad terms, that the number one focus for Democrats is tackling income inequality, while Republicans’ number one priority is growth.

It’s true that Dems don’t focus enough rhetorically on growth, but history unequivocally shows that Democratic presidents have overseen greater economic growth than their Republican counterparts. So yes, I’ll accept Gerson’s argument if he means that Republicans talk more often and more emphatically about economic growth than Democrats. But if he is actually trying to insinuate that Republicans oversee better economic growth, he clearly ignores the data. As Senator Daniel Patrick Moynihan said, “everyone is entitled to his own opinion, but not his own facts.”

So, let’s look at some brief data on economic growth and Democratic presidents, provided by Bob Deitrick and Lew Godlfarb’s book, “Bulls, Bears & the Ballot Box“:

  • Personal disposable income has grown nearly 6 times more under Democratic presidents
  • Gross Domestic Product (GDP) has grown 7 times more under Democratic presidents
  • Corporate profits have grown over 16% more per year under Democratic presidents (they actually declined under Republicans by an average of 4.53%/year)
  • Average annual compound return on the stock market has been 18 times greater under Democratic presidents (If you invested $100k for 40 years of Republican administrations you’d have $126k at the end, if you invested $100k for 40 years of Democrat administrations you’d have $3.9M at the end)

Those sure are some embarrassing numbers for a party whose number one “focus” is supposed to be economic growth.

Tacoma $15 minimum wage group needs signatures: 15 Now Tacoma, a group looking to boost Tacoma’s minimum wage to (you guessed it) $15 an hour, still needs nearly 500 signatures to get an initiative on the November ballot. They have until June 17th to collect the remaining signatures.

Seattle board backs smoking ban in parks: As always, the city of Seattle is addressing the tough issues. Yesterday, the Seattle Board of Park Commissioners on Thursday endorsed Mayor Ed Murray’s plan to ban smoking completely in city parks. The good news is that, “[t]he parks department also said it would establish an enforcement-monitoring committee, including a representative from the Seattle Human Rights Commission and an advocate for the homeless, to oversee the ban’s impact on vulnerable people.”

Americans are economically insecure: In his most recent article, Paul Krugman writes

“that 3 in 10 nonelderly Americans said they had no retirement savings or pension, and that the same fraction reported going without some kind of medical care in the past year because they couldn’t afford it. Almost a quarter reported that they or a family member had experienced financial hardship in the past year.”

Daily Clips: May 28th, 2015

The Rise of Social Liberalism and GOP Resistance
The New York Times – Charles Blow.

As I noted earlier this week, Americans are shifting to the left on key moral issues. Unfortunately, this change will likely add to the amount of people who obnoxiously call themselves “socially liberal, but fiscally conservative.” Thankfully, it will also add, as the Gallup report pointed out, to greater acceptance of 1) gays and lesbians, 2) having babies outside of marriage and 3) premarital sex. A small price to pay, I suppose.

What’s more, America’s shift to the left puts Republicans in a tricky situation. Once again, they won’t be able to “lose the primary to win the general” election – as Jeb Bush perfectly said. Their base is simply not socially liberal enough. As Blow states,

Take Iowa, for instance, whose February caucuses will be the first contests of the 2016 presidential cycle. As the Public Religion Research Institute pointed out earlier this month:

“Iowa Republicans are notably more socially conservative than Republicans nationally. Compared to Republicans overall, Iowa Republicans are more likely to oppose legalizing same-sex marriage (64 percent vs. 58 percent, respectively), and are more likely to say abortion should be illegal in all or most cases (68 percent vs. 58 percent, respectively).

And that’s a serious problem. Because,

This [primary] process has not been kind or general-election-friendly for the Republican candidates in the last couple of cycles. [And] there is no indication that most Republicans — either candidates or voters — have drawn the necessary lessons from [past] defeats.

Ted Cruz, who voted against Hurricane Sandy aid, calls for federal relief following floods: The Texas Senator’s position is clear, ‘big brother’ disaster relief is only necessary when it benefits his state. The man is a parochial chump. I mean, really, it takes a certain type of statesman to turn their back on vulnerable Americans simply because they do not reside within their state’s borders.

Additional fun factoid: No state received more federal relief than Texas in 2011 and 2012.

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No, the $15 Minimum Wage Isn’t “Unprecedented”

$15 Now

Socialist council member Kshama Sawant, ruining it for the rest of us.

Everybody likes to refer to the recent spate (yes, I’ll use the word “spate” correctly here, to educate our conservative friends by example) of minimum wage hikes to $15 an hour as “unprecedented.” Even the New York Times referred to the adoption of a $15 minimum wage in Los Angeles as “an unprecedented increase.”

And I suppose $15 an hour is unprecedented, if by “unprecedented” you mean we’ve never had a minimum wage of $15 an hour in the United States before. But if you’re using that definition of “unprecedented,” every single minimum wage increase in America is unprecedented, because the minimum wage always goes higher than it was before.

But Jay L Zagorsky at The Conversation points out that the amount of this minimum wage increase does have precedent. We’ve raised the minimum wage at a higher percentage on several occasions in the past; hell, one time we even raised it all at once rather than by increments, as every city has done so far with the $15 minimum wage:

In 1949, the federal minimum wage was 40 cents per hour. It was increased to 75 cents in 1950, an 88% jump that was intended to account for the inflation that built up during and after World War II. This hefty pay hike – the biggest in a single year – did not appear to crush economic activity. On the contrary, the national unemployment rate fell in subsequent years, to 2.9% in 1953 from 5.9% in 1949.
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Daily Clips: May 27th, 2015

Is the GOP shooting itself in the foot again with Latinos?
Washington Post – Greg Sargent.

Yesterday’s ruling in Texas upheld an injunction on Obama’s executive actions on immigration. At first glance, this appears to be bad news for Democrats and immigration activists. But this may come with a price for Republicans in 2016. As Greg Sargent cogently mentions,

Democrats will portray continued GOP opposition to those enforcement priorities as a sign that Republicans have only moved to the right on immigration. This is surely not where GOP operatives had hoped to be. Remember that the GOP autopsy into what went wrong in 2012 explicitly noted that Republicans have to signal a more welcoming posture towards Latinos, to get them to listen to the GOP on other issues.

In the aforesaid autopsy report, GOP strategists warned that Republicans must champion comprehensive immigration reform if they hoped to capture a larger proportion of the Hispanic vote. The ruling in Texas yesterday does not eliminate this possibility. And with Marco Rubio and Jeb Bush waiting in the wings, the prospect for such reform could still be possible. “Still,” as Sargent concludes, “one wonders whether GOP operatives — the ones who are actually paid to win national elections — privately like what they’re seeing here. My bet is they don’t.”

Unemployment falls below 4 percent in King, Snohomish counties: Goldy wrote about this welcome news yesterday, but I thought I’d repeat it. King County’s unemployment rate sits at 3.3%, which represents a 0.8% drop from this time last year. So much for that minimum wage leading to widespread unemployment.

Seattle home prices are rising fast: That’s according to data from the S&P/Case-Shiller Home Price Indices released this week, which showed a 7.5 percent leap in Seattle home prices in the last year. The last time this region’s home prices increased that much was before the 2008 recession.

Class of 2015 faces grim job prospects: According to the Economic Policy Institute, young college graduates now have an unemployment rate of 7.2 percent, which is still well above historical norms. As Elise Gould, one of the authors of the EPI study said,

…we are still far from where we want to be. Graduates can expect entry-level wages that are lower in inflation-adjusted terms than they were 15 years ago.

Think that’s bad enough? These flat wages are compounded by huge increases in costs to tertiary education. The EPI notes that the cost of private college rose 125.7 percent between 1984 and 2014 while the cost of public universities grew 129 percent. Talk about being behind the eight ball.

King County Unemployment Rate Plummets to 3.3 Percent! $15 Minimum Wage to Blame?

$15 Now

Socialist council member Kshama Sawant, ruining it for the rest of us.

If Seattle businesses are closing up shop in response to our $15 minimum wage, you wouldn’t know it from our falling unemployment rate:

King County’s unemployment rate reach[ed] a low not seen since April 2008, data released Tuesday by the state Employment Security Department show.

King County’s unemployment rate in April was 3.3 percent, compared to 4 percent in March and 4.1 percent in April 2014.

Okay, monthly unemployment data is not seasonally adjusted, so the rate will surely rise in May and June as college and high school graduates join the workforce (like it does every year). And of course, it will take years—maybe even a couple decades—to fully suss out the employment effect (if any) of Seattle’s phased-in $15 minimum wage.

But again, if employers are cutting back on hiring in anticipation of rising labor costs—like $15 critics insist a rationally self-interested employer would—you wouldn’t know it from our falling unemployment rate.

But, you know, one crappy chain pizza place closed, so screw the data.

[Cross-posted to HorsesAss.org]

Conservatives Who Need to Prove a False Point About the Minimum Wage Refer to One Closing Restaurant as a “Spate”

Shorter New York Post: Pizza, pizza everywhere! (But let's pretend there's a crisis anyway.)

Shorter New York Post: Pizza, pizza everywhere! (But let’s pretend there’s a crisis anyway.)

You’re probably sick of hearing about Z Pizza. Hell, I’m sick of writing about Z Pizza. But at the time of this writing, Z Pizza is the only business in Seattle to claim it’s closing thanks to Seattle’s increased minimum wage, and that makes Z Pizza the poster child for the anti-$15 movement.

This weekend, a few writers used Z Pizza as an example of a rash of restaurant closures in Seattle. Why didn’t they use any other examples? Because Z Pizza is, as I’ve mentioned above, the only restaurant claiming to close due to the minimum wage increase.

In a post on her blog, conservative talking head Katie Kieffer cites a Forbes report that Seattle restaurants “are closing at higher than normal rates,” and then she uses that report to claim that the minimum wage should be eliminated entirely. That Forbes report is by anti-$15 hack Tim Worstall, who cites a sloppy Seattle magazine story that has long since been debunked by the Seattle Times. In other words, it’s based on nothing at all.

In fact, Kieffer’s post is so mind-bendingly dumb that I could spend all afternoon poking at all its illogical leaps and inane assumptions. Thankfully, Linda Tirado has already fisked Kieffer’s post, to hilarious effect. Suffice it to say, a $0 minimum wage—a.k.a. slavery—is not a convincing response to the $15 minimum wage.

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A Gated City on a Hill

Gated house

Simon Howden | FreeDigitalPhotos.net

Despite living in an era of record low crime rates, America’s uber-rich are feeling less and less secure—at least as evidenced by New York City’s burgeoning “safe room” industry:

The world is a very scary place right now, especially for people of means; they feel cornered and threatened,” said Tom Gaffney, the president of Gaffco Ballistics, which has installed a number of safe rooms around New York City.

“When you have so much to lose, and you can afford to, you put a premium on your safety.”

So, couple of thoughts. First, cry me a goddamn river. The world can surely be a “very scary place” right now for the children of the desperately poor. The world can be a very scary place right now for undocumented immigrants. The world can be a very scary place right now for the chronically underemployed and for families facing foreclosure. And if there’s anybody who has a right to “feel cornered and threatened” in America today, it’s young black men just about every time they’re confronted by the police. But people of means, not so much. Far from a scary place, New York City is like a Disneyland for the super rich—with unlimited Fastpasses. So forgive me if I roll my eyes at this zillionaire-as-victim meme.

That said, if people of means really do feel so cornered and threatened by the unwashed rabble these days that they’re willing to cower behind Kevlar-lined, steel-reinforced concrete walls, they might want to ask themselves, “Why?” If the threat is real, they should consider how our nation’s staggering income inequality is undermining their own security. And if the threat isn’t real, they should look deep inside themselves to question whether their paranoia stems from pathological narcissism or a healthy (and justified) pang of guilt?

Also, they might want to ask themselves, “Do I really want to live this way?”

As Civic Ventures Skunk-in-Chief Nick Hanauer has repeatedly warned his fellow plutocrats, the pitchforks are coming. I suppose hunkering down in their gated communities—prisoners of their own wealth—is one way to prepare for it. Or, acting out of rational self-interest, they could start using their enormous influence and wealth to promote policies that address income inequality before the inevitable backlash occurs.