The Vainglorious Noise of Tim Worstall

June 19, 2015 Goldy

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Vainglorious bastard, Tim Worstall

I try to stay away from fisking Forbes blogger Tim Worstall, because honestly, why reward his particular brand of Lazy-Faire™ propaganda with any additional traffic? But if he’s going to relentlessly misrepresent our economic theories, then I’m going to have to at least respond in brief.

In an inexplicably smug post titled “The Joyous Glories Of Nick Hanauer’s Economic Policies,” Worstall once again dismisses Nick Hanauer as a silly demand-sider or something:

The specific point at issue is his assertion that it’s not in fact investment that creates economic growth, it’s demand that does.

Uh-huh. Except, Nick never makes that assertion. I mean, I suppose you could selectively quote Nick (as Worstall deceptively does) to give the impression that “More demand!” is the entirety of our economic prescription, but if you have a zeptogram of respect for context, not so much. In fact, while the conservative Worstall liberally quotes Nick’s recent Democracy Journal piece in an effort to define Nick as something he’s not, Worstall conveniently ignores the paragraph that presents the most coherent summary of our inclusive (i.e. “middle-out”) economics narrative:

In the technological economy of the twenty-first century, growth and prosperity are the consequences of a virtuous cycle between innovation and demand. Innovation is how we solve problems and raise living standards, while consumer demand is how markets distribute and incentivize innovation. It is social, civic, and economic inclusion—the full, robust participation of as many people as possible—that drives both innovation and demand. And inclusion requires policies that secure a thriving middle class.

I know it might be difficult for Worstall to understand given his narrow and rigidly ideological perspective, but inclusive economics is neither demand-side nor supply-side. It’s not Keynesian. It’s not neo-classical. And Nick does not believe, as Worstall claims he does, that “all economists are all wet.” Just some of them. Particularly those who are locked into a 19th century mechanistic metaphor that consistently fails to describe the way the real economy works. If there’s a school of economics to which we subscribe it’s the still-evolving field of “complexity economics” as exemplified by Eric Beinhocker’s eye-opening The Origin of Wealth.

Of course we believe that access to investment capital is a necessary prerequisite for growth, but on its own it’s insufficient. For not even an infinite supply of capital can incentivize a CEO to invest in hiring more workers absent demand for the products and services they produce. That shouldn’t be so difficult to understand.

But more importantly, we believe that economies are about people, not money. It’s people who innovate. It’s people who start businesses. It’s people who add value. It’s people who consume. It’s people who save and invest. And an economy that fails to fully include within it the vast majority of its people is an economy that is wasting its most valuable assets.

As for the rest of Worstall’s post, it’s worth neither the time nor effort to respond. He just pastes in some chart that doesn’t prove or disprove anything in an effort to refute an assertion that Nick never made. Not sure why he comes off so pleased with himself. Maybe ignorance truly is bliss?

Can Uber Survive Ruling that Uber Drivers Are Employees?

June 17, 2015 Goldy

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Economics, Policy

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Finding that Uber is “involved in every aspect of the operation,” the California Labor Commission has ruled that an Uber driver is an employee, not a contractor as the ubiquitous ride-hailing service had argued. In a post on Business Insider, Alyson Shontell explains that the ruling could potentially be “a huge blow” to Uber’s business model:

If this ruling sticks, Uber won’t just be a logistics company printing money, at least in California. The cost to run the business there would skyrocket. … Employees are expensive; tacking on 1 million+ more would be a huge blow to Uber, which was last valued at $50 billion. Companies have to pay social security and medicare taxes for each employee among other things, according to the IRS. They don’t have to do any of that for independent contractors.

Of course, this is just California, and the ruling is under appeal. But let’s be honest: the whole “Uber economy” thing has always been a bit of a shell game—a deliberate effort to shift costs and risks from employers to workers. And California’s labor regulators aren’t the only ones calling bullshit on it. In a somewhat related decision, the National Labor Relations Board ruled last year that McDonald’s is a “joint employer” of workers in its franchise-owned restaurants, potentially exposing the fast food giant to liability for low wages and poor working conditions in its franchisees’ stores, while opening the industry up to traditional labor organizing.

If these rulings hold, they threaten these industries’ low-wage/no-benefit business models. If these rulings are reversed, they threaten to further undermine the economic security of America’s working and middle class. Either way something is clearly very wrong with continuing to rely on a job-based benefit system in an economy that is increasingly shifting from jobs to work.

Fortunately, we have a solution. Writing in the latest edition of the influential Democracy Journal, Civic Venture’s own Nick Hanauer and SEIU 775NW president David Rolf propose a new “Shared Security System” for the 21st century that would endow every American worker with a basic set of employment benefits that would be prorated, portable, and universal. Such a system would vastly simplify and standardize labor costs across all industries and all business models while providing the economic security necessary for a vibrant middle class to thrive.

Uber may not like being told that it has to treat its drivers like people. But a business model built on stripping from American workers benefits as basic as Social Security, unemployment insurance, and workers compensation, isn’t a business model that benefits the economy as a whole.

David Brooks Can’t Do Math

June 17, 2015 Goldy

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Economics, Trade, Uncategorized

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stockimages | FreeDigitalPhotos.net

I could easily spend the next five days fisking New York Times op-ed columnist David Brooks’ absurd notion that it was a “Democratic Tea Party” that was to blame for the TPP’s defeat… if I could only get past his stoopid, stoopid lede:

Last week, the Congressional Democrats defeated the underpinnings of the Trans-Pacific Partnership trade agreement.

Um, Congressional Democrats defeated the TPP? Really? Sure, the motion failed 126-302, with only 40 Democrats voting yes. But the last time I checked, Republicans hold a commanding 246 to 188 seat majority. GOPers could have easily passed TPP on their lonesome, but only about a third of House Republicans could bring themselves to vote for fast track authority. Yet somehow, according to Brooks, it’s the minority Democrats who are solely to blame for its defeat?

By that logic, I guess Dems are also to blame for the fifty-some times Congress has voted to repeal Obamacare. Damn you, Democratic Tea Party!

WA Republican Anti-Taxers Have Lost the Editorial Boards on Capital Gains

June 15, 2015 Goldy

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Uncategorized

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Our state’s editorial boards love to complain about the budget impasse in Olympia, but for many years they have played a key role in the obstruction, consistently opposing any substantive new tax—especially on income—as fervently as the most dyed-in-the-wool anti-tax Republican. Until now:

Victor Habbick | FreeDigitalPhotos.net

A proposal in the Senate would apply a 7 percent capital-gains tax to 0.1 percent of the state’s residents, or about 7,500 residents. It would only apply to gains over $250,000 for individuals or $500,000 for couples.

Instead of punting to committees and next year’s Legislature, they should buckle down and make the choice to begin taxing capital gains.

That’s the Seattle Times editorial board making the case that a “capital-gains tax is best option to fund education.” Seriously. And while we’ve been seeing their position evolve over the past few months, it’s still pretty stunning to see them state their support for the tax so bluntly.

And then there’s this from today’s Olympian:

A key element of our state’s F grade for effort was the comparatively low percentage of the state’s economic output that Washington has invested through taxes into K-12 schools. Part of the problem is our over-reliance and regressive tax system that ignores a large share of economic activity including the sales of services and such income-producers as capital gains.

I sometimes joke that I’m the only non-lawmaker who still reads the editorial pages, but of course that’s not true. Editorial board endorsements may not be nearly as influential as they were even a decade ago, but they still play a role in shaping public opinion. Or at least, reinforcing it. And anti-tax legislators no longer have the “serious” people behind them in obstructing all efforts to tax income.

Washington’s tax structure is absurdly regressive. I’ve been saying that since my very first blog post, more than 11 years ago. There’s simply no arguing with that fact. And now the editorial boards have finally acknowledged that our revenue system is insufficient as well. Republican lawmakers should take note that they are on the wrong side of the editorial boards on this issue, and that if we fail to pass the additional revenue necessary to satisfy McCleary, the editorial boards won’t be shy about pointing out which lawmakers are to blame.

Given my fierce criticism over the years, you might think that I’d hate to give the editorial boards credit for finally advocating for responsible tax policy. Not at all. Responsible tax policy is all I ever really wanted. And it’s great to see the Seattle Times on board.

[Cross-posted at Horsesass.org]

“Let ‘Em Drink Dirt!”

June 15, 2015 Goldy

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Economics

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Source: oshpd.ca.gov

If you want to know why there’s so much open hostility to our nation’s one percenters these days (except for our benevolent patron St. Nick, of course!) you need read no further than this piece in the Washington Post: “Rich Californians balk at limits: ‘We’re not all equal when it comes to water.’”

I’m not often at a loss for snarky words, but I’m actually struggling to adequately poke fun at people who do such a great job of parodying their own unselfconscious awfulness. For example, this:

Drought or no drought, Steve Yuhas resents the idea that it is somehow shameful to be a water hog. If you can pay for it, he argues, you should get your water.

People “should not be forced to live on property with brown lawns, golf on brown courses or apologize for wanting their gardens to be beautiful,” Yuhas fumed recently on social media. “We pay significant property taxes based on where we live,” he added in an interview. “And, no, we’re not all equal when it comes to water.”

And this:

“It angers me because people aren’t looking at the overall picture,” Butler said. “What are we supposed to do, just have dirt around our house on four acres?”

And then, there’s this:

“I call it the war on suburbia,” said Brett Barbre, who lives in the Orange County community of Yorba Linda, another exceptionally wealthy Zip code. … He is fond of referring to his watering hose with Charlton Heston’s famous quote about guns: “They’ll have to pry it from my cold, dead hands.”

Um, well, okay. When the pitchforks come, I’m sure that could be arranged. Because this is the sort of arrogance that fuels revolution.

The truth is, most Americans don’t begrudge the wealthy their private yachts and their fancy cars and their stupidly-big houses. We don’t trudge through the first class cabin on the way to our cramped seats in coach defiantly humming “The Internationale” under our breath. In fact, most Americans probably fantasize about living an extravagant lifestyle, even if they don’t exactly aspire to it.

But we’re talking about water, in the state that grows nearly half our nation’s produce. And you’re telling us that during a statewide drought emergency, your lawn is more important than our food? Really?

I mean, cheat on the drought restrictions if you have absolutely no civic pride, and pay the fines if you can afford to. I guess it’s your right as an American to be an arrogant selfish prick. But don’t be surprised if, lacking adequate access to water, the unwashed masses ultimately refresh the tree of liberty with the only thing more precious.

Time to Reregulate the Airline Industry, If Only Just a Little?

June 12, 2015 Goldy

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Policy

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Oh god, I hate flying. (Source: Port of Seattle | Don Wilson)

Longtime readers know that I’m not much of a fan of the modern airline industry. I’m old enough to remember when the airlines didn’t just treat passengers like those things they pack into the area above the cargo hold. Airline deregulation combined with the stupidly useless inconveniences and humiliations of our post 9/11 security theater have helped transform a mildly uncomfortable and tedious experience into an anxiety-provoking Darwinian struggle for elbowroom and overhead bin space on a plane that may or may not get you to your destination anywhere near on time. There is no other industry that routinely treats customers paying hundreds, even thousands of dollars with such utter disrespect, bordering on contempt.

Yes, I know, flying is so much cheaper than it was during the days of heavy regulation—though not nearly as cheap as it used be, and not as cheap as it would’ve been had ticket prices continued to fall at the same rate they’d been falling during the 30 years prior to deregulation. So now that 80 percent of domestic air travel is controlled by just four major carriers—eliminating much of the market competition deregulation promised—isn’t it time to start talking about reregulating the airline industry, if only just a little?

Seriously. It’s not like the airlines aren’t already colluding to keep supply down and prices high:

At this week’s meeting in Miami of the International Air Transport Association, the annual meeting of the world’s top airline executives, the buzzword was “discipline.”

… “Discipline” is classic oligopoly-speak for limiting flights and seats, higher prices and fatter profit margins. This year, that discipline seems to be working: the I.A.T.A. projected this week that airline industry profits would more than double this year to nearly $30 billion, a record.

So if the airlines are already capable of this level of coordination, why not require them to cooperate in one more key area: tariffed fares for rebooking passengers on competitors’ flights.

There once was a time if you missed your flight or connection for any reason—mechanical problems, weather delays, stuck in traffic on the way to the airport—your airline would rebook you on the next available flight out, even if that flight was operated by a competing carrier. They could do this because fares were regulated, costing the same across all carriers operating on the same route. Pam-Am would happily accept a TWA ticket, and vice versa. It was very efficient and very customer friendly.

But nowadays, if you miss your United connection in Chicago you could sit there for a day or more waiting for another United seat to open up, as other airlines fly on to your destination with dozens of open seats. That’s just plain stupid.

My simple suggestion is that the feds require airlines to rebook you on the next flight out, just like in the old days, while imposing a formula for fair compensation between the airlines. I mean, if the airlines are going to voluntarily cooperate on keeping seats scarce, they should be forced to cooperate on ameliorating some of the inevitable consequences of this intentional scarcity.

It wouldn’t be a huge burden. In fact, the added cost may even be offset by the more efficient allocation of seats across airlines. And while it’s maybe not the sort of big idea one expects from the Skunkworks, it would certainly take some of the unnecessary anxiety out of flying.

Walmart Reports “Relief in Turnover” Since Raising Minimum Wage

June 10, 2015 Goldy

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Economics, Minimum Wage

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Looks like Walmart is finally figuring out the high cost of paying low wages:

(Reuters) – Wal-Mart Stores (WMT.N) has been losing fewer workers to turnover since it raised its minimum wage in April, the retailer’s chief executive said on Friday, the first time it has reported a benefit of the new higher wages.

Wal-Mart increased its minimum pay to $9 an hour for its U.S. staff in April, providing a raise for half a million workers, and promised to hike it again to $10 an hour next year. The federal minimum is $7.25, though some states impose higher minimums.

… “Our job applications are going up and we are seeing some relief in turnover,” Wal-Mart’s chief executive, Doug McMillon, told a media briefing after the company’s annual shareholders’ meeting on Friday.

Of course they are. The interesting question is, why did it take so long for Walmart to figure out their low-wage business model was counterproductive when history is replete with examples of the bottomline benefits of paying your workers a fair wage?

For example, take Henry Ford and his famous $5 day. That thing about wanting to pay his workers enough to afford the cars they built? That’s useful demand-side rhetoric, but it’s largely bullshit—a self-congratulatory story Ford embraced after the fact. No, the way he justified to his board at the time his bold plan to more than double daily wages, was that it would cut down on his factories’ crippling turnover rate.

An early 20th century assembly line job was brutal and brutally monotonous work—hour after hour of performing relentlessly quick, repetitive, and often dangerous tasks. So as you might expect, morale was low at Ford’s factories, and the turnover rate high. Absurdly high. As much as 370 percent annually. Throughout the year of 1913, Ford hired 52,000 workers in order to maintain an average workforce of only 14,000. Every new worker required weeks of costly training and break-in. Assembly lines sometimes screeched to a halt for want of enough qualified workers. Absenteeism and turnover made it impossible for Ford to keep up production and produce cars at the low prices his business model demanded.

And so when Ford introduced the $5 Day the next year, it was with an eye toward reducing turnover, thus lowering labor costs and ramping up production. And it worked! Turnover plummeted and productivity soared. The rest of the auto industry initially dismissed Ford as crazy, but they all soon followed his example.

And here’s the thing: once the other auto makers matched Ford’s wages, taking away his competitive advantage in the labor market, turnover didn’t revert to the bad old $2.25 days. Better paid workers do a better job. They’re more loyal. More productive. Less likely to call in sick. And less likely to constantly be on the lookout for a better deal someplace else. That’s the real lesson from the $5 day.

And it’s one of the main reasons why, for all the dire warnings that a higher minimum wage will hurt business and kill jobs, the predicted negative employment effect never happens. Much of the expense of raising wages is made up in increased worker productivity and lower hiring and training costs. That’s why Costco can constantly outcompete Wal-Mart-owned Sam’s Club while paying substantial higher wages and benefits.

I know. It’s a more complicated story than the old trickle down tale that when wages go up, employment must go down. But the world is a more complicated place than the supply-siders make it out to be.

If You Hate “Market Distortions” You Should Hate our Nation’s $1.2 Trillion in Student Debt

June 8, 2015 Goldy

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Economics, Policy

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Stuart Miles | FreeDigitalPhotos.net

In a New York Times op-ed, writer Lee Siegel makes a cogent case for why more people should follow his lead and default on their student loans:

I found myself confronted with a choice that too many people have had to and will have to face. I could give up what had become my vocation (in my case, being a writer) and take a job that I didn’t want in order to repay the huge debt I had accumulated in college and graduate school. Or I could take what I had been led to believe was both the morally and legally reprehensible step of defaulting on my student loans, which was the only way I could survive without wasting my life in a job that had nothing to do with my particular usefulness to society.

The free marketeers love to rail against government policies that allegedly “distort the market,” but as Siegel’s personal choice illustrates, isn’t that exactly what the high cost of higher education is doing? Young people are choosing careers, not because they are particularly useful or because they are particularly well suited, but because that’s the only way to earn enough money to pay off their student loans.

The US could certainly use more great social workers and teachers (and yes, even more writers), but our decades-long disinvestment in public universities is sucking would be social workers and teachers out of these professions and into less well suited but better paying lines of work (if it doesn’t dissuade them from going to college altogether). How does this benefit our economy? How does it not distort the market to require a talented and dedicated journalist to take a vow of poverty in order to ply their craft?

From a labor market perspective, wouldn’t it be more efficient to free workers from this market-distorting burden (Americans currently carry over $1.2 trillion in student debt), creating greater flexibility for employers and jobseekers alike?

I know, there’s that “moral hazard” thing. Well Siegel’s got an answer to that too:

Some people will maintain that a bankrupt father, an impecunious background and impractical dreams are just the luck of the draw. Someone with character would have paid off those loans and let the chips fall where they may. But I have found, after some decades on this earth, that the road to character is often paved with family money and family connections, not to mention 14 percent effective tax rates on seven-figure incomes.

Moneyed stumbles never seem to have much consequence. Tax fraud, insider trading, almost criminal nepotism — these won’t knock you off the straight and narrow. But if you’re poor and miss a child-support payment, or if you’re middle class and default on your student loans, then God help you.

Siegel’s probably right: there are many Americans who would be better off defaulting on their student debt. But of course, the better, more efficient, and less-distorting solution would be to move toward a system in which all qualified students have the opportunity to graduate from college debt free.

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