Corporate Tax Cuts Don’t Mean More Jobs

This NYT article is right, but I think the explanation is simpler. Companies don’t hire because they have extra cash. They hire because there is unmet market demand such that hiring in the short term makes them more profit in the longer term. If the demand is there, most businesses would borrow to hire. At present, and for the last many years, consumer demand is low while corporate cash reserves are high. Do the math. Jobs aren’t there because demand isn’t there. Period.

The standard trickle-down argument says that once companies start hiring, they will put cash in workers pockets, who will then drive up demand. And sure, that would work… if lots of companies hired. But this scenario leaves out some crucial detail about how this has to work. To restate the process:

  • Companies have to hire workers they don’t need.
  • Enough companies have to do this that the collective new workers’ paychecks stimulate demand across the economy.
  • Then (and only then) does the demand materialize that justifies having hired the workers in the first place.
  • And even after all this, each company is risking that demand will materialize in their particular market. Some of them will be wrong.

Having spent the last 3 decades working in management for and with many companies, I can assure you that very few businesses would take this risk absent some significant exogenous incentive. It’s just not going to happen.

An Open Letter to Trump Supporters

redgreenLast night, a majority of you, through your action or inaction, elected Trump. I don’t fully understand why, but it kinda doesn’t matter now. That’s done. Water under the proverbial bridge. No backsies. Besides, whatever your motivation, the reality is that you elected Trump’s policies and visions. Further, you swept in a single party to control the White House, Congress, and in short order, the Supreme Court. So there’s little to hinder Trump delivering on what he’s promised… and soon. After all, Trump has been very plain about how much will change on Day 1 or in the First 100 Days. Maybe that’s a bit of hyperbole, but he’s easily got 2 years of pretty unchecked reign to get his agenda on track. He’s got no excuses, so buckle up.

I admit, I don’t really get how a lot of the tactics he’s proposed achieve his goals. Granted, his plans are bit thin on details, but it’s early. And besides, what the hell do I know? I thought I’d be waking up to President-elect Clinton this morning. But in broad strokes, in terms of end objectives, I really do hope he achieves what he’s said.

I’m looking forward to the return of high-paying blue-collar manufacturing jobs, the demise of ISIS and terrorism in general, a better way to keep Iran from nuclear tech, less foreign military deployments, 5% GDP, healthcare that will be so much better than Obamacare, lower taxes, no federal deficits, reductions in violent crime, better educations for our kids, having the VA fixed and providing for our vets, restructuring all our international trade deals and alliances to our benefit, saving Social Security, and rebuilding our crumbling infrastructure. It’s ambitious, but if Trump can make even a dent in a significant part of that list without cratering the economy or the environment, sowing civil unrest, or disenfranchising any segments of US citizens, then I’ll be first in line to eat crow.

Conversely, if Trump’s plan for America leads to some substantive combination of a tanking economy, spiraling debt, cuts to essential government services, debilitating trade wars, actual wars, civil unrest, higher unemployment, increased terrorism, loss of personal freedoms, or runaway environmental crises, then that’s on you. You own that. History will make you accountable.

Meanwhile, I’m gonna sit back and let this play out. Just try to keep in mind that this is what you wanted. And remember, I’m pulling for you. We’re all in this together now. Don’t fuck it up.

Minimum Wage, Maher, and Math

CORRECTION: The original article contained an assumption of 25m people currently at minimum wage. That number is incorrect in that it actually represents the number of workers below $11.50/hr that would be impacted by a new $10.10 minimum wage. This did, in fact make the math wrong. The article below has been changed to include more accurate numbers.

Maher-MinWageThe ongoing political battle over minimum wage too often seems to lose site of the larger goal each side is trying to achieve. And further, I’m increasingly understanding that the stated goals are not too far apart. This leads me to believe that someone has an actual goal different from their professed goal, or that my math is just way the hell off.

As Bill Maher alludes to in the depicted quote, the right is frequently on record as having a desire to reduce or eliminate safety net programs. This is also a goal of the left. The difference being that the right seems to want to eliminate the net on the premise the need will then go away, whereas the left wants to eliminate the need for the net so it can die of natural causes.

Let me start by asserting something I hope everyone can agree on. As a society, we will not simply remove the safety net and let any significant portion of the population wallow in abject poverty. While some may see this as an obvious humanitarian position, even the most pure-blood capitalist has to recognize that, historically, having a large, persistent, impoverished, and increasingly desperate economic underclass never ends very well for those who control the wealth and resources. To that end, there is an inherent balance between the government subsidizing low-skill workers through safety net programs and having private industry pay full freight for the labor they are using. Someone is going to pay for these folks.

My second assertion is that there is no ideological reason to keep the minimum wage at the current $7.25 rate. If you accept minimum wage as adding value to the economy and to society, then it should represent a living wage that would allow a worker to live without government supplements. If you fall on the side of free market capitalism, then there should be no minimum wage and the market should set the rate at whatever it will bear.

Third, let’s assume that the current minimum wage, in addition to current safety net supplements, are minimal but sufficient compensation for low-skill workers. Finally, let’s assume the CBO report (PDF) on the impact of raising the minimum wage to $10.10 is a reasonable predictor of the outcome.

Given these constraints, the cases to consider are an increased minimum wage at which workers’ dependence on the safety net would be lessened or eliminated, verses a natural wage floor that if lower than the current minimum wage would require an increase in safety net benefits just to keep workers even with where they are today.

Now for the math: the CBO says there are 17m low wage workers (currently making below $10.10/hr), and as a result of raising the minimum to $10.10/hr, 500k (3%) would lose their jobs and the remainder would get a raise. As seen in the worksheet below, assuming the lost jobs are all at the current minimum wage end, the newly unemployed represent a $7.25b loss of wages.

In the other case, I think we can agree that given the current unemployment rate for low-skill workers that there is an excess of supply. This means the $7.25 minimum wage is holding the wage floor artificially high. Market forces should seek a lower wage, and I think we can say with confidence that absent a minimum wage law, the wages of the majority of low-skill workers would fall.  For the model below, I somewhat generously assumed that 20% of workers currently at the minimum wage would retain that wage because their value to their employers warranted it. I also assumed that the actual wage for the remaining 80% would fall by only $0.30/hr, which is almost certainly a low number. Still, the resultant wage losses for the group amount to $7.92b.

In addition, the CBO estimates that 8m workers who are currently above the $10.10/hr rate would see a net positive gain from the ripple effect of a higher minimum wage. While not stated, presumably this group would be negatively effected by the ripple of the wage floor falling. (None of the 8m were included in this corrected analysis.)


In either case, we’ve assumed the government is on the hook to provide some form of substitute compensation to make up the loss for the effected workers. Clearly, it’s cheaper for the government to wholly pay for the unemployed 3% than to offset the loss of the 97%.

Further, the minimum wage increase should lessen the dependence on the safety net for the workers who get raises. Assuming workers only reduce their dependence by $600/yr, the result is a $7.92b savings that more than offsets the payments to the 3%. Given that Food Stamp benefits alone are about $1600/yr/person and EITC ranges from $500 to over $6k, recovering $600/employee seems pretty conservative. This is backed up by the CBO report that concludes for the raised minimum wage case that the impact on the federal budget would be a wash.

There is no obvious offsetting revenue stream for letting the market set the wage floor unless we assume a rise in corporate profits and increased revenue from corporate taxes. If this new tax revenue offsets the incremental safety net cost, then why not have the companies pay the money directly to their workers through wages rather than paying it in taxes and having the government redistribute it to those same workers?

All bleeding heart issues aside, I can’t see how raising the minimum wage is not a net economic benefit to society as a whole. Certainly it’s not a disaster as federal minimum wages have been around since 1938—a period during which the USA rose to be the preeminent economic power in the world. This does not prove causation, but does prove that prosperity is very possible with a minimum wage in place.

Further, economically speaking, having the government set a minimum wage is not different than a union or other collective bargaining organization setting a wage-price above what the natural unregulated non-unionized worker price would be.

It seems that advocating for the alternative to a living minimum wage necessarily admits some hidden ideological agenda. Perhaps the motivation is really to benefit individual companies rather than society. Perhaps the assumption that we wouldn’t financially marginalize chunks of our population is not valid. But it’s unclear how it can be rationalized to be about macroeconomic benefit to the country. Or maybe my math really (still?) is whacked. I’m happy to have the error in my ways pointed out, because I’m clearly missing something here.

Threaten Me, Please…

HTF__Threatening_Base_by_FlameBunny700As an atheist, I have a recurring conversation with many believers. They can’t understand why I bother to try to be a good person without the impending fear of judgement and damnation. If I don’t think God is watching me and keeping score, why don’t I just go on a hedonistic binge of barbarism?

I always try to patiently respond that my motivation is mostly internal. I want to judge myself to be useful, productive, helpful, and caring. There is an external aspect to it as well. I want my family and friends to judge me positively. I don’t believe in life everlasting. My only shot at living beyond my mortal years is in the recollections of those who might remember me. And for reasons of my own making, I want that legacy to be based on fondness, respect, and maybe even admiration, not on infamy. That is what I aspire to, and what inspires me.

What I don’t usually share is that their question frightens the hell out of me. The implication (or in some cases, the outright admission) is that the only thing standing between them and a life of raping and pillaging is belief in some exogenous force poised to reign retribution down upon them. They are not a tamed animal, they are a caged one.

Of late, I’ve begun to wonder if this same need for external fear-based motivation extends beyond the realm of religion and morality. In economics, I hear the repeated notion that minimum wages, guaranteed health care, food stamps, unions, and any other program designed to help the poor or the working poor is inherently destructive. It removes the incentive to work harder, train harder, or even to work at all. The underlying assumption seems to be that absent the fear of homelessness and starvation, no one would get out of bed in the morning. It isn’t enough to have a sizable carrot in front of you unless there’s a big angry stick behind you to keep you moving.

This same attitude seems to bleed into foreign policy as well. The notion that the USA must remain the preeminent military power on the planet because otherwise we’ll lose our ability to influence other countries seems predicated on the notion that our power comes from fear that we instill. We repeatedly demonstrate that fear of terrorism will motivate us to actions we would otherwise never consider. In fact politics has largely degenerated into a game of which party can paint the scarier future if the other guy wins.

It even strikes me that much of our gun-culture stems from fears that everyone else, left to their own devices, would pose a threat. It is only by being a bigger threat yourself, that you’re able to keep them at bay.

I do believe that most people view others through their own life-lens. That is, they project their own desires, tendencies, and morality onto the behavior of others. People who worry about the downside of atheism, economic security, and world peace are reacting from the awareness that they themselves realize that in such a world, they would rapidly fall into an existence of varying degrees of unfettered sociopathy.

That there exist so many people contained only by a variety of fears is more than disconcerting. And it would be one thing if there was a recognition that fear-based motivation was destructive and there was a collective consensus to mitigate it. Conversely, what we’re seeing is a resurgence in the idea that fear-based motivation is essential and good.

I had hoped for better, but in the end, maybe we are just barbarians with iPhones.

Six Degrees of Adolf Hitler

HitlerKevin Bacon is so yesterday. If you’re an aspiring political pundit, Hitler is the game. Former governor and three-term senator from New Hampshire, Judd Gregg, is the latest to step into the ring.

Writing in The Hill this morning, Gregg draws a wobbly late-night drunkard’s path from “Progressives” to “Wealth Redistribution”, makes a beeline to “Socialism”, a word that appears in the “National Socialism Movement” in Germany that was later shortened to “Nazism”, and by golly, there’s your “Hitler”. A perfect six hops, proving conclusively that Progressives are as bad as Hitler.

What more is there to say? I mean, you can’t argue with that sort of air-tight deductive power, can you? Surely, Sherlock Holmes himself (assuming he was smoking some seriously good shit in that bad-ass pipe of his) would concur.

I’m arguably a bit manic about this at the moment because it’s the second “slippery slope” argument I’ve seen in the last 48 hours. The other was John Goodman’s essay defending inequality. In Goodman’s case, he had the good sense to avoid Hitler, but he did manage to wend his way from a rise in the capital gains tax rate to 28% all the way to full on communism.

Fer cryin’ in yer beer, do these guys apply this sort of convoluted logic to their everyday lives? Do they really think if they don’t get rid of cable their house will explode?

The crime is that there should be a serious debate here. There are solid arguments for and against various plans to modify the tax code. There are pros and cons to changing the minimum wage. And there are pluses and minuses to socializing various functions and services in society. Further, these are complex interwoven policies. You can’t address them in a vacuum. Rather they need to be considered holistically with other policies to further specific goals.

But silly arguments like these do not advance the discourse. Life is lived in the grey, not at the extremes. If you want to model your world using ideological purity rather than data and reason; if you want your emotions to swell at the sound of soaring rhetoric and nationalist pride; if you want to rationalize the “other” as the root of your plight; then maybe you should be following… HITLER. {FTW}