QUOTE OF THE DAY
Forbes: Should We Care About the Minimum Wage?
In a recent Employment Policies Institute study, economists Wiliam Even and David Macpherson argue that the burden of the minimum wage on young African Americans is particularly heavy. Even and Macpherson point out that employment among African American males between the ages of 16 and 24 is disproportionately responsive to the minimum wage. They argue that a ten percent increase in the minimum wage would reduce employment by 2.5 percent for white males between the ages of 16 and 24, 1.2 percent for Hispanic males between the ages of 16 and 24, and 6.5 percent for African American males between the ages of 16 and 24. The consequences have been considerable. Professors Even and Macpherson estimate that in “the 21 states fully affected by the federal minimum wage increases in 2007, 2008, and 2009,” young African Americans lost more jobs as a result of minimum wage hikes than as a result of the macroeconomic consequences of the recession.
Economists usually cast the employment effects of the minimum wage as a case of the unintended consequences of well-intentioned policies. When I read this paper by Thomas C. Leonard, however, I learned that history tells a different story. Some of the earliest proponents of minimum wages and other labor market interventions were eugenicists; they saw the disproportionate burden on “low-wage races” (their term) as, to borrow a phrase from David Friedman, a feature of the policy rather than a bug. The minimum wage was (and is) more than just lousy economics. It was (and is) an instrument of active oppression.
One could argue that the lost gains from trade attributable to the minimum wage are relatively small. The burden is likely to be larger than it might at first appear because resources that cannot be rationed by the price mechanism will be rationed by other means, and both firms and employees will waste a lot of the prospective gains from trade by waiting, fighting, or both.
One could also argue that the jobs we lose are pretty lousy anyway, so we probably won’t miss them. I find this questionable because the person who took that lousy job demonstrated by his or her choice that he or she preferred the lousy job (with lousy wages, lousy hours, lousy working conditions, etc.) to the alternatives. The minimum wage assumes that someone is blessed with insight that gives him or her the right to substitute his or her judgment for another’s, and to do so by force.
I oppose minimum wages for a couple of reasons. First and most obviously, they hurt the poor. Second, the minimum wage is one of the most visible ways that the anti-economic way of thinking manifests itself in the policy arena. If we are going to make policy that privileges the wants and needs of the least of these among us, then the minimum wage has to go.
Reuters: Retail sales growth slows as higher taxes kick in
Retail sales barely rose in January as tax increases and higher gasoline prices restrained spending, setting up the economy for only modest growth in the first quarter.
The Commerce Department said on Wednesday retail sales edged up 0.1 percent after a 0.5 percent rise in December.
The small increase suggested the expiration of a 2 percent payroll tax cut on January 1 and higher tax rates for wealthier Americans were hurting the economy.
Still, economists said consumer spending was unlikely to buckle given rising home values, moderate job growth and rallying stock market prices.
"We are starting to see the impact of higher taxes, but we have a positive wealth effect from increasing house prices and a boost from equities," said Robert Dye, chief economist at Comerica in Dallas. "My expectation is that consumers are able to continue to increase spending but only moderately."
So-called core sales, which strip out automobiles, gasoline and building materials and correspond most closely with the consumer spending component of gross domestic product, ticked up 0.1 percent.
While U.S. financial markets were little moved by the report, the Standard & Poor's 500 index earlier hit its highest level since November 1, 2007. Prices for U.S. Treasury debt were trading lower, while the dollar rose against the yen.
Consumer spending, which accounts for about 70 percent of the U.S. economy, grew at a 2.2 percent annual rate in the fourth quarter. That helped to soften the blow to the economy from slower inventory accumulation and sharp cuts in defense spending.
The government said last month that economic output slipped at a 0.1 percent rate in the final three months of 2012.
However, the retail sales report showed core sales were a bit stronger in November and December than previously reported. In addition, businesses outside auto dealerships accumulated slightly more inventories in December than earlier thought.
Taken together with a smaller trade deficit in December, the data suggested the government will raise its estimate for fourth-quarter gross domestic product when it publishes a revision later this month. Even so, the economy likely grew at under a 1 percent rate in the fourth quarter, economists said.
Forbes: Think Tanks For Freedom: A Snapshot Of The U.S. Market
During these last three decades, think tanks have been the typical milieu of intellectual entrepreneurs. Those who discover the need for new ideas, policy solutions, or educational programs, need an organization to manage the resources they attract, and then allocate them in pursuit of their goals. That is where the structure of a think tank comes into play.
While in business most entrepreneurs are attracted by the potential for material profits, the intellectual entrepreneur tends to be driven by a different type of psychological and rational calculation. I suspect that most act in order to make society better according to their own vision of an ideal society. When the work of intellectual entrepreneurs is carried out in not-for-profit endeavors, those who provide material resources are called donors rather than investors. Some, especially board members, volunteer with their labor.
How do donors decide whom to fund? Like in any other market, different people seek different products and services. Most start by figuring out the basics of the product they want, say a car, and then try to learn about their qualities. In this case they study the think tanks considered for funding. I will focus this piece on the work of one grant-making foundation which supports approximately 50 think tanks, with over 90 percent located in the United States: the Chase Foundation of the Commonwealth of Virginia.* To qualify for support, the institutes need to be committed to the principles of the free society especially in the economic sphere. In addition, organizations need to certify that they do not receive money or in-kind support from governments or agencies (federal, state or local).
The combined budget of Chase-supported think tanks is approximately $220 million annually. Chase does not support the large, more conservative think tanks such as the Heritage Foundation, The American Enterprise Institute, or the Hudson Institute. I estimate that if we combine the budgets of these and other conservative free-market think tanks—which are not supported by Chase—the entire U.S., Canadian and U.K. market of pro-free society groups is approximately $500 million. The sample of Chase, over 40 percent of the market, is very relevant.
To put this number in perspective, the four top “fund-raising” universities, (Stanford, Harvard, Yale and MIT) each received more than $500 million in donations in 2011. Corporations with the average income of a Forbes 100 list, such as General Electric, or Venezuela’s PDVSA, earn that income in little more than a day. Trade associations, from the “left” and “right” of the political spectrum, have revenues that dwarf that of think tanks. In 2011, for example, The National Education Association had over $360 million in revenues, the American Petroleum Institute, over $180 million in 2010. First conclusion: at least by budget, free-market think tanks are not the “monsters” their enemies pretend them to be.
CNBC: Small Firms Weigh Big 5-0 Under Obamacare
Pamela O'Hara lives and breathes small business. Her company Batchbook provides customer relationship software for small firms like yoga studios and florist shops. In six years, her firm has gone from tiny startup to a growing staff of 30.
"I think we've done that because we've had such a commitment to our employees. And a big part of that is the benefits," said O'Hara in Batchbook's Providence, R.I. offices, where they recently added five new team members.
Batchbook has been offering health benefits from day one, even when the firm had no profits. "It was a big decision, but it was really important for us, that we build the company that we wanted," O'Hara said.
Now, she and her HR manager are spending a lot of time trying to figure out how the Affordable Care Act, also known as Obamacare, will impact the firm's benefit plan. This year, they chose a high deductible plan to keeps costs down. Their insurance broker said that plan may not comply with new limits on out-of-pockets costs for health plans beginning in 2014, so their rates are likely to rise. That could impact hiring plans.
A 2011 NFIB study found that the health increased health costs due to the new insurance premium tax that begins in 2014 could reduce future private sector employment by 125,000 jobs during the next 19 years, with well over half of those jobs at small businesses.
Jim Pethokoukis: Obama misstated the evidence of the potential benefits from universal pre-K
In his SOTU speech, President Obama highlighted some supposed real-world proof supporting his universal pre-K push:
Every dollar we invest in high-quality early childhood education can save more than seven dollars later on, by boosting graduation rates, reducing teen pregnancy, even reducing violent crime. In states that make it a priority to educate our youngest children — like Georgia or Oklahoma — studies show students grow up more likely to read and do math at grade level, graduate high school, hold a job, form more stable families of their own. We know this works. So let’s do what works and make sure none of our children start the race of life already behind. Let’s give our kids that chance.
Well, maybe not. Grover Whitehurst of Brookings (in his second AEIdeas hit of the day):
Hmm? The Georgia universal pre-K program was established in 1996, which would make the first participants about 20 years old. Oklahoma’s began in the late 1990s, so its first participants are even younger. They form more stable families of their own? As I indicated in my previous piece, the research on the impact of state pre-K programs is very thin and the results are mixed. The largest impacts have always been associated with children from the most disadvantaged backgrounds. This argues for targeted, intensive programs, not universal ones.
Reason: Soaking the Rich
In January, as part of a deal to avert the fiscal cliff, Congress increased marginal tax rates on higher-income earners to Clinton-era levels while preserving existing Bush-era rates for most taxpayers.
By boosting rates for the rich, Congress is banking on the notion that tax increases will deliver much-needed revenue for the government without unduly damaging the economy. The bet is that high earners will keep working despite Uncle Sam’s taking a bigger bite out of their income. In the short run, this might well be true. But the longer run is much more complicated.
President Barack Obama started the fiscal cliff negotiations by proposing to raise taxes on couples making more than $250,000 and singles making more than $200,000—roughly the top 2 percent of taxpayers. The president has long maintained that he just wants the rich to pay their “fair share,” a formulation famously supported by billionaire investor Warren Buffett. Never mind that the federal tax code is more progressive than most and that millionaires already pay an effective tax rate that’s nearly three to four times the rate paid by the middle class.
In a November New York Times op-ed piece, Buffett once again called for increasing marginal rates on taxpayers making $500,000 or more, plus a minimum tax on high incomes: 30 percent on taxable income between $1 million and $10 million, and 35 percent on incomes above $10 million. According to Buffett, such tax policies would safely raise revenue from rich people who are unlikely to change their behavior. He writes “So let’s forget about the rich and ultrarich going on strike and stuffing their ample funds under their mattresses if—gasp—capital gains rates and ordinary income rates are increased. The ultrarich, including me, will forever pursue investment opportunities.”
High-income earners’ response to changes in taxes is an issue that academics have studied extensively. In 2000 University of Michigan economist Joel Slemrod published Does Atlas Shrug?: The Economic Consequences of Taxing the Rich (Harvard University Press), a book in which he challenged the free market belief that raising taxes on the rich would lead them to secede from the work force, as famously described in Ayn Rand’s novel Atlas Shrugged.
Since then, economists have tried to refine their understanding of the magnitude of the aggregate labor supply changes— one of the ways people can adjust their behavior in response to higher tax rates. But they have not yet reached a consensus. On one hand, the literature has revealed that in the short run the supply of labor is relatively unresponsive to changes in after-tax earnings. Full-time employees—especially primary earners, who have historically been men—don’t really seem to react much when their taxes go up. They work the same hours at the same jobs even when they get to keep less of their earnings.
CNBC: Drop Coverage or Cut Hours? Big Companies Grapple With Obamacare
For large retail and restaurant chains the big unknown in the year ahead is how much more they'll pay for health coverage. Employers with 50 or more workers who put in 30 hours a week will be required to provide health care coverage or pay a fine, under the Affordable Care Act, also called the ACA or Obamacare. But the details haven't been settled.
"We can't really calculate what it's going to be like," said John Mackey, Co-Founder and Co-CEO of Whole Foods, an outspoken critic of the Obama health reform law.
His grocery chain already offers health care to workers at the 30-hour threshold. But he said the company may be forced to reconsider its full-time staffing levels, if the final employer mandate rules still being crafted by the Obama administration require companies to offer costly benefit options.
"Say we're paying $3,200 a year for insurance for somebody, and the new regulations cost us $5,000 to insure somebody. If they work fewer hours, we just saved $5,000 per person," because there is no mandate to provide coverage for part-time workers, he explained.
Atlanta Journal-Constitution: Parent trigger charter schools bill zooms through House panel
A parent trigger charter schools bill zipped through the House Education Committee on Tuesday, boosting the chances that, for the second year in a row, the Georgia Legislature will pass major legislation pushing charter schools.
“This bill is called an empowerment act, and that’s what it would do,” said House Majority Whip Edward Lindsey, the Atlanta Republican who sponsored the bill.
The parent trigger would allow a majority of a traditional public school’s households or a majority of teachers and instructional staff at that school to demand that the school board consider their petition to change the school into a charter school.
But opponents of the measure, House Bill 123, have said that, like last year’s legislation that allowed voters to change the Georgia Constitution to clarify the state’s power to create charter schools, the parent trigger is a bad idea that won’t automatically result in better education options.
“Coming up with more gimmicks to create more charter schools won’t solve the problem,” said Rep. Brian Thomas, D-Lilburn.
USA Today: Consumer group: Limit added sugars in beverages
The Center for Science in the Public Interest filed a petition with the Food and Drug Administration urging the agency to identify a safe level for added sugars in beverages.
Soda and other sugary drinks have unsafe levels of high-fructose corn syrup or other added sugars, a consumer group says, and it's urging the government to determine a safe level to reduce Americans' "dangerously high sugar consumption."
The Center for Science in the Public Interest filed a petition today with the Food and Drug Administration urging the agency to identify a safe level for added sugars in beverages.
The petition is supported by a letter signed by 41 nutrition scientists and physicians and the public health departments of 10 major cities including Boston, Los Angeles, Philadelphia and Seattle.
A diet high in high-fructose corn syrup and added sugars is linked to an increased risk of obesity, type 2 diabetes, heart disease, gout and tooth decay, says CSPI Executive Director Michael Jacobson. About two-thirds of adults and one-third of children in the USA are overweight or obese.
On average, people are downing 18 to 23 teaspoons of added sugars a day — about 300 to 400 calories, he says. There are about 355 calories in 22 teaspoons. Every teaspoon has about 16 calories.
CNN Money: State of the Union: Plenty of plans, not much economic promise
How serious is this president about promoting economic growth? Growing the U.S. economy wasn't an agenda item in President Obama's second inaugural address, a play to his liberal supporters that instead dwelled on inequality, climate change, feminism, gay rights, and long voter lines.
But jobs and the economy were front and center in last night's State of the Union address, Obama's first since becoming the only Democratic president since FDR to twice win a majority of voters. Here's the catch: This president wants Washington-managed growth, designed to "reignite the true engine of America's economic growth -- a rising, thriving middle class."
In the White House's view, big business, which employs about 50 million Americans --nearly half the American workforce -- is mostly a problem, not a partner, in this enterprise. Business leaders stand accused of unfairness -- whether it's related to paying workers or paying taxes.
In his first term, the Obama Administration's message toward business leaders was, at best, schizophrenic -- making a showy production of putting business leaders on his advisory jobs council, then hauling Wall Street CEOs to the White House to be lectured on the dangers of greed. Two weeks ago, President Obama let his jobs council expire, even though unemployment barely dropped during the short and meek life of this Potemkin village -- from 8.3% to 7.9%. Now both gloves are off.
"Corporate profits have rocketed to all-time highs -- but for more than a decade, wages and incomes have barely budged," President Obama declared minutes into last night's address. In a White House that is bereft of business leaders, this is a matter of "fairness," so the solution is to raise the minimum wage from $7.25 to $9 a hour -- a rate that's higher than any state's minimum other than Washington -- even though that's likely to cost jobs in an economy that contracted last quarter.
"Working folks shouldn't have to wait year after year for the minimum wage to go up while CEO pay has never been higher," the president declared, even though chief executive pay actually peaked in 2000 and has since fallen, according to research by the University of Chicago's Steven Neil Kaplan.
CARTOON OF THE DAY