Tag Archives: minimum wage

Our Thirty Five Years of Mythological Economics

trickle down economics

The only problem with this cartoon version of  Trickle Down economics is that the bird at the top should be getting larger as the years extend.  Likewise, the birds in the middle range should be getting more stressed as they attempt to stay on their middle income perches.  It’s a nice touch that the background is in blue, suggesting we’re about to be washed up in a tide which only serves those who are perched high enough to avoid drowning.

Meanwhile, the  best response to the sentence “A rising tide lifts all boats,” is “Where Are The Customers’ Yachts?”  For those who have not yet read this 75 year old classic – it’s still available, and still germane to American economics.  It was true then, and true now.  The problem is that the financial sector has hijacked significant portions of our economic thinking, in ways that have left us prone to being bedazzled by BS.   Thus, we’d prefer to rail against the Wall Street Casino rather than believe we’ve been following some very foolish advice offered, in turn, by some very foolish, and very self serving,  people. And, there are people challenging the BS rendition of American capitalism.

Those who missed Mrs. Clinton’s speech at the New School (NYC) on our economic challenges can view the C-SPAN broadcast here. (55 minutes)

The initial response from journalists was “Hillary’s bashing Wall Street.” [Reuters] This makes for a convenient headline – Beltway Shorthand for her support for regulation of Wall Street investment bankers’ transactions – however, it doesn’t come close to adequately summarizing what both candidates Clinton and Sanders have been saying about financialism in American economics. The Beltway Media is missing the point, perhaps because it doesn’t fit neatly into a template predetermined by editorial policy, or a simplistic code for easy lead paragraphs.

The point is that we have had 35 years of what President George H.W. Bush called Voodoo Economics (although bless his heart he promoted it like any good Republican), and it doesn’t work in the real world. Why? Because the mythology violates the simple principles of American capitalism:

”So here’s an idea worth spreading. In a capitalist economy, the true job creators are consumers, the middle class. And taxing the rich to make investments that grow the middle class is the single smartest thing we can do for the middle class, the poor and the rich.” [LAT]

With this basis in mind, let’s tackle some of the mythology and deal with a bit more economic reality.  We might as well start with the “job creators” sound bite.

#Job transference is not necessarily job creation.  Yes, Home Depot has about 340,000 employees. [USAT]  However, in order to achieve those numbers, how many local hardware stores went out of business, or had to shave employment numbers, because they were hard pressed to compete with the Big Box Stores?  Of the 340,000 Home Depot employees only 21,000 were salaried, the rest were working on a temporary basis or for hourly wages.  The average hourly wages for employees in the retail sector are $14.36 per hour. [Monster] Further, we know that about 1/3rd of all retail sector employees are working part time. If we take a closer look we find that the median wages for retail employees (full time) in building materials and garden equipment were about $12.21 per hour. [BLS]

So, we have to ask ourselves, if a Big Box Store moves in an puts a local supermarket or hardware store out of business, does that translate into “job creation” or simply the transference of personnel from one job into another – possibly lower paying – job?

#Low wages make stocks attractive and the overall economy weaker.    The largest fast food chain in the U.S. has approximately 440,000 employees. [USAT]  And, what do food service preparation employees earn?  About $19,300 per year, or approximately $9.28 per hour. [BLS]  The average weekly hours for all employees are currently estimated as 25.8 per week, and for nonsupervisory employees at about 24.6 hours per week. [BLS] Significantly, before we fall into the hype-vat argument about the “kid’s first job,” only about 30% of fast food workers are teenagers, another 30% are between the ages of 20 and 24, and the remaining 40% are 25 years of age and older. [CEPR]

From the shareholder perspective it makes perfect sense to keep wages low, employee turnover high, and continue to appeal to those who have a “quarterly value” vision of America.   From the perspective of other business owners in the area, those low wages translate to minimal disposable income, which means fewer customers for their products and services.  In short, the yacht at the top is sailing along while the little boats bounce around the rocks.

#Wealth created from indebtedness doesn’t trickle anywhere.  Median household earnings are slowly, very slowly, emerging from the last Recession.

real median household income If we find more jobs transferred from, say, smaller local firms to larger national ones, or more jobs are being created in sectors like food and beverage service with notoriously low wages, then we might expect to find household incurring debts to maintain a middle income life style.

Consumer indebtedness, which was down to 4.88% of disposable income in the fourth quarter of 2012, is now back up to 5.30%. [Fed]  There are a couple of ways to see this, first as an indication that people are feeling better about assuming credit card or personal debt because their incomes are more stable, or secondly that while they’re feeling a bit better, the credit card has become a way to keep afloat.  However, those debts are the basis for altogether too much of what constitutes Wall Street wealth accumulation.

Household debt Whatever amounts of these debts are securitized means that they’ve gone into the Wall Street Casino to be used as the basis for hybrid financial products.  So, what’s been happening to the securitization of auto loans?  It’s “coming back strong” but not at “pre-crisis levels.” Translation: It’s not a bubble. [FRB ATL]  It’s lovely to know the Federal Reserve doesn’t consider the securitization of auto loans at the Bubble Level, but it’s also a bit worrisome to note that what is gained from that securitization isn’t trickling down anywhere near the automobile product consumer.

Nor is there much happy news about securitization and the student loan business.  ZeroHedge offers this gloomy prospect:

“So just as we have been warning about for sometime now: an underestimation of the impact of deferral and forbearance and weakness in the job market is likely to trigger defaults on billions in student loans and because these loans comprise the collateral pool backing ABS sold to investors, the ripple effect is magnified and we wonder if the July 2007 moment for the student loan-backed ABS market may come sooner rather than later.”

The ‘wealth’ produced on Wall Street is based on the loan the students took out to pay for educational expenses, securitized, tranched, sliced, diced, and repackaged for the ‘benefit’ of the investors – those who may very well get burned in this round of Securitization Bingo.

Evidently lost on the Sultans of Securitization is the simple fact that an asset based security requires someone to be able to afford the purchase of educational services or automobiles, or the other stuff on the credit card – the original assets.

It’s one thing to announce that “middle class incomes” are back where they were in 1995 – and another thing entirely to notice that the costs of college tuition are up 61% since ‘95; that home prices are up 13%; that the price of gasoline is up 94%; and that Big Mac is up 28%. [moneyCNN] These numbers aren’t the sort to make anyone comfortable who’s taking out the student loan or buying the house. Eventually, even Wall Street may have to take notice of the fact that no matter how much revenue it can generate in terms of ABS and the hybrids related thereto, if American consumers can’t generate sales – and jobs – then investors are caught trying to ride the bubbles.  Bubbles always pop, that’s why they’re bubbles.

The ‘wealth’ from the sales, and hedges, and bets, on asset based securities, again, trickles down nowhere near the average home owner or car buyer.  However, no one is arguing that ABSs don’t have value.  They are a way to spread the risk around, and that’s positive.  They are negative when we see them mask intrinsic cracks in American capitalism, and negative when we see that the revenue generated never quite manages to trickle back down to the local economies perhaps in the form  of better roads, better schools, better parks, better libraries, and better public services like broadband.

Candidates Clinton and Sanders aren’t “bashing Wall Street,” they are simply trying to point out that the lurch from one bubble to the next isn’t a productive way to run an economy, and lunging from one volatile market to the next isn’t the way to insure that the capacity of the average consumer to purchase the assets on which the securities are based remains steady and profitable for everyone.  If Wall Street can’t divest itself of its 35 Year Investment in imaginary economics, and can’t restrain itself from short term financialist thinking, then someone has to be the adult in the room.  The adult is called reasonable regulation, and that’s all they are asking.

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Filed under Economy, financial regulation

Happy Fourth of July: A More Perfect Union

Flag July 4th

It’s a good 4th of July weekend.  The benefits of citizenship have been affirmed for members of the LGBT community, but as the founders told us we’re on a path to create “a more perfect union.”  Therefore, there’s more work to be done to insure that housing, employment, and other areas of American life aren’t stumbling blocks of discrimination. We will have to keep up efforts toward building that “more perfect” union.

Ravenal Bridge

There may be some dead-enders, some battle flag flying remnants of blatant racism, but no matter how hard the Klan and their allies try, their proposed demonstration will be nothing compared to the thousands who walked along the Ravenal Bridge in Charleston, South Carolina.  We’re closer to being a nation of people who are taking Dr. Martin Luther King Jr.’s message to heart:

“When evil men plot, good men must plan.  When evil men burn and bomb, good men must build and bind.  When evil men shout ugly words of hatred, good men must commit themselves to the glories of love. “

At least two churches in the south have been the target of recent arson attacks, so in order to form that more perfect union it’s time for people of good will to build and bind.   It’s been a long walk from the bridge in Selma to the bridge in Charleston, but we’re getting there.  We still have to acknowledge the often painful accuracy of Winston Churchill’s backhanded compliment, “You can always count on the Americans to do the right thing, after they’ve tried everything else.”  

In a more perfect union, we’d not have maps showing that a person earning minimum wages cannot achieve a point at which only 30% of his income can pay for a one bedroom apartment.

Rent map

The darker the blue the worse the problem.  We’ll have a more perfect union when we address the complications of living on inadequate wages.  It does no good to march behind banners proclaiming that hard working Americans should “save for the future,” – when simply meeting basic needs for food, housing, and adequate clothing consume all the family’s income. It takes us no closer to a more perfect union to proclaim, “if the poor would just work harder they’d get ahead,” when elements of our judicial system, parts of our educational system, and the myopia of commerce combine to force workers into multiple jobs at minimal wages.  We are no closer to forming a more perfect union when we reward those who prosper at the expense of those who produce.

Unassisted graph

In a more perfect union this graph would be significantly lower.  How do we care for the least able among us? The learning disabled young man with nerve damage, but not quite enough to meet disability standards?  Unmarried, with no dependent children, unemployed except for odd jobs paying about $10 per hour?  A victim of child abuse, and now a victim of a system in which he doesn’t qualify for benefits because he’s never been able to find employment which sustains them. [Reuters]

We’ll be a more perfect union when we are more aware that the able-bodied are not necessarily able to fully function in our modern economy.  In a more perfect union there is more educational, job, housing, and food support for those who live on the margins of despair.

I look to the diffusion of light and education as the resource most to be relied on for ameliorating the condition, promoting the virtue and advancing the happiness of man.” Thomas Jefferson to Cornelius Blatchly, October 1822

And yet:

“About seven in 10 (69%) college seniors who graduated from public and private nonprofit colleges in 2013 had student loan debt. These borrowers owed an average of $28,400, up two percent compared to $27,850 for public and nonprofit graduates in 2012.   About one-fifth (19%) of the  Class of 2013’s debt was comprised of private loans, which are typically more costly and provide fewer consumer protections and repayment options than safer federal loans.”  [TICAS]

In a more perfect union, education advances the “happiness of man,” not merely the bottom line of banking institutions, and certainly not the unrestrained avarice of some for-profit operations who once having the federal funds in hand look to more recruitment without much concern for those already recruited.

And, then – predictably – there’s the Wall Street Casino, which has created SLABS (Student Loan Asset Based Securities).  While certainly not in the mortgage meltdown class, these are problematic because:

“What I find most disturbing about SLABS is that they create a system where an increase in tuition (and the debt-burden on the borrower) equals an increased profit for the investor. When you consider the role that unscrupulous speculators played in the mortgage crisis, one can’t help but wonder if a similar over-valuation of college tuition is taking place for the benefit of SLABS investors. With the cost of attending college increasing nearly 80% between 2003-2013 while wages have decreased, it’s no wonder that so many people are having difficulty paying off their student loans.” [MDA]

This situation is NOT the way to “diffuse light and education.”

There are countless other topics and issues on which we might dwell, assistance for the elderly, transportation, trade, economic security, police and community relations, infrastructure issues, voting rights,  domestic terrorism, domestic violence, gun violence, climate change … the list is  as long as the population rolls, as we try to create that more perfect union of imperfect human beings.

What we need is Churchill’s optimism – that eventually, after avoiding problems, exacerbating problems, tinkering with problems – we’ll do the right thing.

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Filed under banking, civil liberties, education, financial regulation, Global warming, homelessness, income inequality, Minimum Wage, poverty, racism

The Fanatic Season: Politics as Liturgy

Fanatic Eric Hoffer summed it up in The True Believer: Thoughts on the Nature of Mass Movements in 1951:

“The quality of ideas seems to play a minor role in mass movement leadership. What counts is the arrogant gesture, the complete disregard of the opinion of others, the singlehanded defiance of the world.”

Consider how often the right wing insists on doing the unthinkable?  Why would anyone launch a deliberately provocative  “Cartoon Contest” and call it an exercise in ‘free speech?’  Why would anyone put a gun site target on the names of members of Congress? Why would anyone think it appropriate to print the addresses of physicians who provide abortion services?  Because, perhaps, these are arrogant gestures, with a complete disregard for the safety and well being of others, defying convention (and good sense) as would a single-handed hero in defense of something, anything, whatever…

On the national level this allows Fox News to promote the demonization of Islam and its adherents, or to declare a “War on Christmas,” or to offer comfort to the bigot, the intolerant, and the racist.   On a state level the concept allows the elevation of the gun enthusiasts and supports their sense of victimization – as some unspecified “they” are perceived to be “coming for your guns. “ It also allows the faithful to identify “public servants” as “pigs at the trough” when they aren’t being vilified for not doing their jobs with insufficient resources; and, to degrade the humanity of the working poor for “not making good choices,” thereby relinquishing their right to be treated with compassion as fellow human beings.  Hoffer had a line about this concept as well:

“Hatred is the most accessible and comprehensive of all the unifying agents. Mass movements can rise and spread without belief in a god, but never without a belief in a devil.”

Indeed, the current manifestation of the conservatives in the Republican Party (and this may mean just about all of its leadership at the moment, the moderates being driven from the field) is beset with devils of all sorts.   At this juncture political ideology becomes confused with something we might call political liturgy.

Let’s look at the definitions. First, ideology is defined as “a system of ideas and ideals, especially one that forms the basis of economic or political theory and policy.”   Liturgy means “a form or formulary according to which public religious worship, especially Christian worship, is conducted.”  A formulary “is a collection of formulas or set forms, especially for use in religious ceremonies.”

The fanatic may have some difficulty differentiating between an ideology and the performance of liturgy. Ideology is properly understood as a position a person takes regarding, say, how revenue is collected for the operation of a government and the priorities for its distribution.  A liturgical element inserts itself as time after time a politician asserts talking points which are faith based with little or no rational substance.

Some Examples

The standard Republican talking point (liturgical element) concerning proposals to increase the minimum way is that doing so will have a negative economic effect.  This is often reduced to the formulaic: Increasing the minimum wage will cost jobs.  The problem is that there is no substantive research confirming this notion.  There are several credible studies indicating there would be no “negative employment effects” of increasing the minimum wage, and the talking point defies the common sense notion that an employee of one company is always a customer of others.  Empirical studies demonstrate that lower wage workers are more likely to spend marginal income than wealthier ones. [Salon]

The standard Republican talking point (liturgical element) is “Support the Troops;” and a person can easily obtain a yellow ribbon car magnet for this message to place alongside the “Love Your Country Live With Pride” bumper sticker.  That this is a liturgical insertion rather than an ideological position is illustrated by the disinclination of Republicans in general to vote in favor of increased wages for members of the Armed Forces, in favor of more benefits for service members and veterans, in favor of more job training programs for veterans, and in favor of the extension of more VA medical services to veterans who served during peacetime.  At the risk of sacrilege, I’d say this is roughly analogous to reciting “Kyrie eleison, Christe eleison, Kyrie eleison” without thinking of the meaning.

And then there’s the standard GOP line … “the government is the problem.”  Until, of course, it’s the solution.  We might consider Texas Senator Ted Cruz’s remarkable illustration of how this liturgical element can be reversed as he begged for federal aid for Texas cities literally drowning in flood waters.  This, from the self-same Senator who voted against federal relief expenditures for the victims of Hurricane Sandy. [DailyBanter]  This line is hauled out of the vestry and applied to attempts to curtail malfeasance (and worse) in the banking industry, to curb polluters, to put the brakes on corporate mismanagement, until the nation becomes a victim of banking malfeasance (or worse), the state has to clean up a toxic spill, and the investors in a corporation despair of any relief from greedy executives.

The Ramifications

When policy positions (political ideological statements) become articles of faith (as part of a liturgy) then there’s a danger that portions of the electorate are no longer participating in a political process, but are voting and behaving as a “mass movement” in which the Devils will be scourged by those who can recite all the correct elements of the liturgy.  Nothing contemporary illustrates the liturgical quality of Republican leadership statements as the current blathering about climate change.

When the Pew Foundation did some polling on the subject it found that 67% of all adults surveyed believed that climate change is occurring, and 84% of Democrats (or those leaning toward the Democratic party) agreed.  Among Republicans 46% agreed the climate is changing, and this represents 61% of “mainstream GOP” who agree the climate is changing, and 25% of Tea Party adherents who agree.

Bear in mind the Tea Party  percentage when noting that 66% of Democrats agreed that human activity was a major cause of climate change, compared to 43% of independents, and 24% of Republicans in the 2013 survey.

The 24-25% of Republican voters would likely find nothing untoward about presidential candidate Rick Santorum’s request that the Pope leave the “science to the scientists.” [CSMonitor]  It’s probably important to note at this point, that no, the Pope doesn’t have the equivalent of a master’s degree in chemistry – but he did have a degree in chemistry in the Argentine educational system and according to a fellow Jesuit: “Liebscher said he hopes this does not sound like “we’re denigrating his education. Francis certainly respects the scientific method, and careful measurement ranks high in his list of values.”   The “correct” liturgical response about climate change has evolved in Republican political parlance.

Initially, and there are still adherents to the position, the GOP response was that Climate Change was misinformation, or at worst a hoax.  Later on the position was Climate Change is real but human beings aren’t responsible. The present iteration seems to be that Climate Change is real, human beings just might be responsible for some of it, and ordinary people shouldn’t talk about it because “science is best left to scientists,” the optional liturgical insertion may be “I’m not a scientist.” [Bloomberg]

Moving beyond a single illustration of how the transformation of ideology into liturgy is problematic for a democratic republic, when the correct formulaic recitation of liturgy stands in place of a discussion of policy alternatives only the True Believers are deemed fit to carry the party banners.  This is what former Republican official Bruce Bartlett complains of when writing that Fox News has actually harmed the political prospects of the Republican Party.

‘Fox has now become a problem for the Republican Party because it keeps a far right base mobilized and angry, making it hard for the party to move to the center or increase its appeal, as it must do to remain electorally competitive….One of the reasons Mitt Romney was so unable to pivot back to the center was due to the drumbeat at Fox, which contributed to forcing him to the right during the primary season.’

Compare this to one of the original quotations above:

“Hatred is the most accessible and comprehensive of all the unifying agents. Mass movements can rise and spread without belief in a god, but never without a belief in a devil.”

The unspoken assumption seems to be that Fox News will only beat out the rhythms of the Pure, the uncontaminated unadulterated liturgy of the extreme right.  It will only sate the political appetite of those who prefer liturgical formulations rather than explain the underlying catechism; in other words – those who wish to cast out the “devils” — be they African Americans in urban areas, minimum wage workers, environmental advocates, human rights activists, critics of the banking industry, or Democrats.

The proper incantation of the political liturgy will comfort those who wish to be comfortable in their biases, prejudices, and ideology.  Just as their unquestioning belief in a particular confession of faith grounds them, their insistence on a political liturgy relieves their anxieties keeps them anchored.   A liturgy which validates their fears – of African American men, of the working poor, of unemployment, of immigrants, of members of the LGBT community, of Muslims, of economic displacement, of anyone or anything outside their immediate experience – is consoling.

The Bottom Line

The problem, as Bartlett observes in a political realm, is that the more ideology is replaced by a confession of faith, and the more the confession of faith is sustained by the participation in ritualized liturgy, the more likely it is that the movement devolves into a sect.  Once a movement is reduced to a sect at least two things can happen, and they’re both bad.

First, as Bartlett notes, the sect becomes so restricted that it cannot reach a wider audience, and secondly the sect is inclined to defend the indefensible, merely because a fellow member is being criticized.  Witness the defense of the Duggar family’s handling of their son’s molestation of his sisters which almost perfectly summarizes the DARVO position – Deny, Attack, Reverse the Victim and the Offender.  Again, the more the sect becomes identified with a cultish adherence of defending the indefensible the more narrow the appeal of the movement.

One one hand there is some consolation in the idea that the Republican Party may eventually restrict itself to a narrow cult of unelectable True Believers, however, as one who finds the restriction of alternative points of view counter productive in politics and public policy the prospect of a degenerating GOP is not very appealing.

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Filed under banking, conservatism, ecology, energy policy, financial regulation, Republicans

So, What About the Children?

child poverty rate

Should the Nevada Legislature care to address some issues other than those espoused by the gun-happy among us, there is one which should attract more attention than it’s getting.  23% of the children in this state are living in households at 100% of the official poverty line. [datacenter]  That’s an increase from the 2009 rate of 18%. In fact, the rate has been increasing – from 18% in 2009, steady at 22% in 2010 and 2011, up to 24% in 2012, and leveling at 23% as of 2013. [datacenter] The percentage in 2013 in Congressional District 1 was 36%, in Congressional District 2 – 18%, Congressional District 3 – 13%, and Congressional District 4 – 24%. [datacenter]  The numbers didn’t get any better in 2014.  Nevada’s 23.4% of children living in poverty was higher than the national average 22.6%. [LVRJ]

This has some significant implications for those ‘education reformers’ who are touting accountability in the public schools because the income/achievement gap was grown significantly in the last three decades.  And, this matters because, “By the early part of the 21st century, racial inequality was much lower (although far from eliminated) in terms of wages, health disparities, and residential segregation. Meanwhile, economic inequality reached historic highs (Saez, 2012). Although both remain high, economic inequality now exceeds racial inequality in education outcomes.” [ASCD] (emphasis added)

Wait, there’s more:

“The fact that the income achievement gap is large when children enter kindergarten—and does not grow substantially during the school years—suggests that the primary cause of the gap is not unequal school quality. In fact, the data in Figure 2 show that schools may actually narrow academic achievement gaps, rather than widen them. The data show the gap narrowing between the fall and spring of the kindergarten and 1st grade years—periods when students were in school—and widening in the summer between kindergarten and 1st grade—when they were not in school. Although we can’t assume that the same pattern holds in later grades, the ECLS-K data do suggest that schools may reduce inequality rather than widen it.” [ASCD] (emphasis added)

Isn’t it convenient to blame low test scores on ‘failing schools’ without looking at the impact of poverty on the kids who are entering those schools in kindergarten and first grade?  Rather than railing on about ‘failing schools’ and children not reading at grade level, it might be more useful to take a harder look at the conditions from which those children are coming.

There is a “language gap” which has nothing to do with English or Spanish, but with the vocabulary to which youngsters are accustomed in low and high income households.  We have about 50 years worth on research on this topic: [see also: ASCD, NYT, Stanford]

“…five-year-old children of lower socioeconomic status (SES) score two years behind on standardized language development tests by the time they enter school. In fact, a March 2013 study (link is external) by Fernald and colleagues titled, “SES Differences in Language processing Skill and Vocabulary Are Evident at 18 Months,” reported that signs of the vocabulary gap are evident before a child is even two-years-old.”

In short, by lumping all schools in a test-score matrix with bench marks for ‘success’ which don’t factor in poverty, we’re getting only half the picture.  How does one classify a school as failing when a significant number of kids entering it are already two years behind?  Further, if a significant number of kids attending ‘Moose Moon Elementary School’ are already behind before the doors open to them – then perhaps if the kids are reading only 1 level below ‘grade’ in the 3rd grade then we should call that success?

Poverty isn’t only a matter of vocabulary, nutrition plays a role as well.  One study conducted in Canada is instructive:

“These findings demonstrate an independent association between overall diet quality and academic performance among grade 5 students in Nova Scotia, Canada. Dietary adequacy and variety were identified as specific aspects of diet quality important to academic performance, thereby highlighting the value of consuming a diverse selection of foods in order to meet the recommended number of servings from each food group.”

There are all manner of research reports on the relationship between nutrition status and educational achievement.  [USDA, NCBI, GenYouth, NMichU]  However, we also know that, as the headline asserts, “Poverty drains Nutrition from the Family Diet.”  What tends to happen is that carbohydrates (cheap) tend to be a higher portion of the family diet as opposed to fresh fruit and vegetables (more expensive) or proteins in meat and fish.   Makes sense when we figure that Mac/Cheese comes to about 90 cents per box, with about 3 servings per box, that works out to about 30 cents per serving.  Compare that to broccoli at about 63 cents per serving, or fresh spinach at about 52 cents per serving, or even the orange at 34 cents [mdand]  and we can see where this is going.  Then there’s the lard, which can be purchased for about $5.88 for 64 oz.  The commodity markets are showing butter at about $1.61 for 16 oz.  48 oz of cooking oil go for about $2.50.  In sum, if a family is trying to make it on SNAP benefits those dollars and cents will go further on Mac/Cheese than on salmon and broccoli.

It just might be more constructive, in terms of educational achievement, to stop mocking, and rolling back, school lunch nutrition requirements – even if the little darlings aren’t that fond of veggies; and to look at increasing SNAP benefits to families with children so that a few heads of broccoli and more meat and fish proteins were included in the family diet.

It often seems that families in poverty can’t win no matter what they do – Should they try to purchase more books for the kiddies they can be chastised for not spending the money on better food.  If they add a bag of oranges to the grocery trip then they can be taunted for not making the most economical use of their grocery dollars.  Heaven forefend they should add some raw spinach or broccoli to the grocery bag.   I can almost hear it now, “I was at the grocery store and the lady in front of me was buying Kale, KALE! with food stamps!”  No matter that Kale is one of the more nutritious  veggies available.

Sadly, as long as the I Got Mine Now You Try To Get Yours attitude prevails amongst legislators at the state and national level, we’ll have a “language gap” because we’ve not addressed the paucity of time and resources available for lower income working families. How easy it is to ‘save money’ by reducing the hours or staff at the public library!  And, we’ll have achievement gaps because kids are filled (or unfilled) with carbohydrate laden diets because that’s the way to stretch the grocery funds.  Even notions about increasing the minimum wage are met with vehement protests that we are creating a Nation of Takers, and speak to a Living Wage and the air fills with dire warnings of moral hazards.

What IF we tried thinking of children as an investment rather than a line item expense?  What IF we thought of them as assets in need of maintenance and care?  What IF we recognized that their poverty will be a factor in their educational achievement?  What IF we rewarded the schools which helped close the language, achievement, and nutritional gaps in their lives? Children aren’t abstractions, slogans like “freedom” don’t mean much on an empty stomach; they aren’t philosophical constructions, pronouncements on “entitlements” don’t mean much when the parents are working three or four minimum wage jobs to keep up.  We should save the sermons for the pulpits and invest in reducing the number of Nevada children who are falling into language, achievement, and nutritional gaps.  One in four is unacceptable.

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Filed under education, nevada education, Nevada legislature, poverty

Profits Without Prosperity

If there’s just one item which ought to be remembered from Vice President Biden’s recent  speech in Las Vegas it’s this – If the minimum wage were to be raised to $10.10 per hour this would add $19 billion into the national economy.  For 256,000 minimum income earners in Nevada that would pay for 19 months of groceries and three months worth of rent.  [LA-AP] So, if we really are “pro-business” then this information should be well received?

Once yet again to the point of unmentionable redundancy, here’s how we measure the growth in our national economy:

GDP formula

Consumer spending + business spending + government spending + the difference between imports and exports = the GDP.  So, why all the gnashing of teeth and tearing of hair over spending?  Why not promote that which will increase consumer spending? And why the inordinate attention to national spending?   Because the tail is wagging the dog.

The titans of finance – the banking sector – are wary of inflation.  That which puts more money into the hands of middle and working class families may cause inflation – the banker’s big bug-bear.  However, they’ve not mentioned the other side of the ledger; if income levels are dropping or if they remain stagnant those same bankers might be looking at deflation.  “The opposite of inflation, deflation has the side effect of increased unemployment since there is a lower level of demand in the economy, which can lead to an economic depression. Central banks attempt to stop severe deflation, along with severe inflation, in an attempt to keep the excessive drop in prices to a minimum.”

In other words, for average families the income will be spent.  Increasing the minimum wage would put more money into local businesses – furniture, appliances, groceries, clothing, entertainment, food service, hardware and home improvement, and so on.  However, for the top .01% whose income is primarily derived from investment earnings, increasing the minimum wage is of relatively little interest.  They are more interested in The Market (read Stock Market) than in the grocery market, the furniture market, the home improvement market, or the clothing market.

Not sure how this works?  Witness the plans for Hewlett-Packard to split up:

A close follower of the company’s stock price, Ms. Whitman may have also decided that the two separate companies would be worth more on Wall Street. Since Ms. Whitman became chief in September 2011, HP shares have risen about 50 percent. [NYT

HP also confirmed the split will result in the loss of another 5,000 jobs, in addition to the 45,000-50,000 layoffs announced with the company’s second quarterly earnings report for 2014 back in May. HP plans to invest the money saved in research and development, and projects full year non-GAAP (Generally accepted accounting principles) earnings of $3.83-$4.03 per share in 2015, not including one-time tax costs of the split. The companies will each have more than $57 billion in annual revenue.” [SDTimes]

There are structural reasons for the split, but the bottom line is that investors have decided the corporation would be more profitable split into at least two entities. And those 5,000 jobs lost?  The layoffs announced in May 2014?  The Market won’t be bothered by those at all; the value of the stock will increase whether or not the former employees are able to find new jobs, or have money to spend on housing, food, clothing, entertainment, furniture, etc.   The value of the stock is the pinnacle of success in the “Shareholder Value” construct of modern American capitalism.  There’s really nothing dramatically new about this – when share value for the sake of share value becomes the primary force in management then other considerations are necessarily secondary.

Hewlett-Packard’s focus on shareholder value isn’t unique either. Remember how the old Trickle Down Hoax was supposed to work? Corporations were supposed to have more revenue to invest on research and development, more to spend on expansion and hiring, more to spend on marketing and product sales?  Not. So. Much.

“Instead of investing in new plants, equipment and products, instead of paying their taxes and giving a long-overdue raise to their employees, big corporations are spending their record profits — plus gobs of newly borrowed money — to buy back their own shares and those of other companies.” [WaPo May 2014]

And we’re not speaking of just a few corporations, and the arithmetic is fairly simple:

“Meanwhile, the corporations of the Standard & Poor’s 500-stock index spent $477 billion last year (2013)  buying back their own shares, a 29 percent increase over 2012 and the most since the peak year of 2007. The idea behind buybacks is that they are a tax-advantaged way to return profits to shareholders by boosting the market price of their shares. Since the stock market tends to value companies by multiplying the profits per share times the number of shares, reducing the number of outstanding shares has the arithmetic effect of boosting the stock price. [WaPo May 2014]

During 2013 this “tax advantaged way to return profits to shareholders” was applied by 80% of the companies on the S&P 500.  This is precisely how Wall Street and the Corner Offices can see profits without prosperity. What we need to observe is the interplay between value creation and value extraction.  The Harvard Business Review explains:

“For three decades I’ve been studying how the resource allocation decisions of major U.S. corporations influence the relationship between value creation and value extraction, and how that relationship affects the U.S. economy. From the end of World War II until the late 1970s, a retain-and-reinvest approach to resource allocation prevailed at major U.S. corporations. They retained earnings and reinvested them in increasing their capabilities, first and foremost in the employees who helped make firms more competitive. They provided workers with higher incomes and greater job security, thus contributing to equitable, stable economic growth—what I call “sustainable prosperity.”

This pattern began to break down in the late 1970s, giving way to a downsize-and-distribute regime of reducing costs and then distributing the freed-up cash to financial interests, particularly shareholders. By favoring value extraction over value creation, this approach has contributed to employment instability and income inequality.”

Does that last sentence sound familiar?  So, we know that stock buybacks were popular as of 2013, how about 2014 – it’s now reported (Bloomberg) that 95% of the S&P 500 have engaged in the activity – of value extraction rather than value creation.   The Economist chimes in on the subject:

“Over the past 12 months American firms have bought more than $500 billion of their own shares, close to a record amount. From Apple to Walmart, the most profitable and prominent companies have big buy-back schemes (see article). IBM spends twice as much on share repurchases as on research and development. Exxon has spent over $200 billion buying back its shares, enough to buy its arch-rival BP. The phenomenon is less extreme in other countries, but is becoming popular even in conservative corporate cultures. Led by firms such as Toyota and Mitsubishi, Japanese companies are buying back record amounts of their own shares.”

Yes, stock buybacks can artificially elevate share prices, and give quick bucks to the short term investors.    Someone needs to flash on a yellow caution light.

“In 2013, 38% of firms paid more in buy-backs than their cashflows could support, an unsustainable position. Some American multinationals with apparently healthy global balance sheets are, in fact, dangerously lopsided. They are borrowing heavily at home to pay for buy-backs while keeping cash abroad to avoid America’s high corporate tax rate.” [Economist]

Yet when we have a corporate compensation system which rewards share value why would the CEO of Hewlett-Packard, or IBM, or any other major corporation NOT focus on share prices? Even if they are in peril of having lopsided ledgers. Even if they are extracting more value than they are creating?  Even while they are avoiding America’s corporate taxes? The GAO calculates the actual tax rate paid by these corporations at 12.6%. [CNN]

So, instead of creating value (building new plants, new equipment, new products, paying taxes, or raising wages and salaries) the companies are busy trying to extract value at the risk of making themselves uncompetitive. The financialists, focused as they are, on short term investments, in debt incrusted corporations, are far more interested in value extraction than in value creation, and that’s how we get profitability without prosperity.

Capitalism requires value creation, a balance of consumers and producers, and the accumulation of assets. Financialism is focused on value extraction, feeds on the notion that one firm’s debt is another M&A firm’s asset, and demands that “costs” whether for plant upgrades, employee wages, or research and development not impinge on the “tax advantaged ways to return profits to shareholders.”   The Economist closes the argument: “shareholder capitalism is about growth and creation, not just dividing the spoils.”

The creation of value means investing in more products, better products, more goods, better goods, more services, better services – and now we’re back to the point at which we need to restart the conversation about how to increase aggregate demand for these goods and services – by increasing the minimum wage.

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One man’s expense is another man’s revenue

It’s difficult to fault them for their effort, but the right wing think tank, NPRI, toes the Friedman Line on minimum wage theory and embraced it wholeheartedly in 2010. [NPRI]

“Nevada voters don’t escape responsibility, either. They put a thoroughly destructive minimum-wage law in the state constitution by a voter initiative in 2006. Thus on July 1 of this year the state minimum wage increased to $8.25 an hour for laborers without health insurance.

Siding with demagogues and ignoring wiser counsel, voters no doubt believed they were helping low-income workers earn a higher wage. But in reality, minimum-wage laws mandate fewer job opportunities for low-skilled workers. Nobel Prize-winning economist Milton Friedman nailed it when he called the minimum wage “a law that is most properly described as: employers must discriminate against people with low skills.” [NPRI]

Unfortunately, there’s no There here.  Leaving the loaded language (demagogues) aside, this has been the corporate complaint since June 25, 1938 when the Fair Labor Standards Act was signed by Franklin D. Roosevelt.  In 1973 Friedman gave an interview with Playboy magazine (the one all the guys bought for the articles) in which he opined “I’ve often said the minimum-wage rate is the most anti-Negro law on the books.” [HuffPo]  Huh? Worse than the Fugitive Slave Act of 1850?   However, herein we have the origins of the mythology so ardently adopted by the radical right.

The mantra, to be recited ad nauseam, is “Minimum wage laws damage the prospects of young, minority, and unskilled workers.” That there is no substantial evidence to support this contention is dismissed because at some ethereal theoretical level the assertion is held to be “common sense.”

Yes, minimum wage level workers tend to be young, under 25, but as noted previously, they certainly aren’t all teens.  A 2012 EPI report debunks this but of ideology concisely:

“One common misconception about minimum-wage workers is that they are mostly teenagers, working part time. In fact, of the roughly 1.4 million low-wage workers who will benefit from Jan. 1 minimum wage increases in eight states, roughly 80 percent are at least 20 years old and 78 percent work at least 20 hours per week. The percentage of affected workers who fit the false stereotype of teenage, part-time workers is a mere 12 percent.”

The second fly in the ideological ointment is that somehow the labor “market” is the best determinant of the value of an employee, without any guidance from government.   At worst, this is a call to return to those wonderful old days when a carpenter in New York could expect to earn $3.49 per day or a machinist in Maryland might expect to average between $2.32 and $2.55 per day. [NBER pdf]

Most of us have a memory of our first, usually minimum wage, job and the attitude of our initial employer — who would have paid us less, but surrendered to the mandate of having to pay us at least the minimum.  Chris Rock spoke for all of us: “I used to work at McDonald’s making minimum wage. You know what that means when someone pays you minimum wage? You know what your boos was trying to say? “Hey if I could pay you less, I would, but it’s against the law.” [GoodReads]

Lost in the rhetoric of the minimum wage dispute is the upward pressure on wage levels by having set a floor beneath which wages cannot be legally justified. Cut through the weeping and clothes rending of those decrying the employment state of minorities and teens, and we’d see the corporate agenda, one in which there is less pressure for higher wages for more experienced or better educated workers because there would be no minimum below which an employer could not retreat.

Further down the drain hole, the loss of a minimum wage level ultimately means that labor is solely an input into the calculation of product or service cost.  Pious speeches about the dignity of labor, the edification of work, or the ‘value’ of our employees are reduced to the simple insertion of an expense in a spread sheet.

Speaking of ad nauseum, how many times has this blog offered the First Law of Personnel Management?  There is NO reason to hire anyone unless the staffing level is such that the demand for goods or services cannot be met with an acceptable level of customer service.  The reduction of an employee to an expense on a spread sheet demonstrates a focus on only one side of the tally.  We could as easily argue that one man’s expense provides another man’s revenue.

The continuation of that thought is simple — and does make demonstrable sense — there can be little or no economic growth without consideration given to the Demand side of the equation.  That which depresses demand decreases the level of growth.  And, what decreases demand? Poverty.

Federal Poverty Guidelines 2014Now, let’s see what this means for some workers in Nevada.  The minimum wage in Nevada is $8.25 per hour, or $7.25 per hour if the employer provides, and the employee receives, health insurance benefits. [BL]

A fast food cook in Nevada, working in our accommodation and food service sector, has a median hourly wage of $9.27.  The median annual wage for this job is $19,280.  A glance at the chart above shows that the wage earner can’t support a family of three — he or she is below the official poverty line.  The average monthly rental lease for an apartment in Las Vegas now stands at $781 per month, or $9,372 or 48% of a fast food cook’s annual median wage.

A department store security guard position has an annual median wage of $24,950, or $12.00/per hour.  This level puts the wage earner on the cusp of the poverty line for a family of four.  A person working as a home health care aide can expect median wages of $12.33 per hour, or about $25,640, insufficient to escape poverty if there are three children to support.  Running the dishwasher in a retail operation? That will yield a median wage of $12.49 for some hot sweaty work, or approximately $25,990 per year. Again, the wage earner can barely support a family of four, and five sinks the ship.

Notice that none of these examples are necessarily of minimum wage paying jobs — the nature of the median being what it is — some are earning above the level reported, and the other half below.  Now, imagine a setting in which there was no floor beneath the wage levels for these common jobs.  If the median annual earnings of a salesperson in a Nevada clothing store stands at $22.430, or about $10.78 per hour — what happens if there is no minimum below which the “labor cost” cannot go?  Our “median salesperson” cannot support a family of four, and is on the edge for a family of three.  Basic utilities in Las Vegas will average $151.21 per month [Numbeo] add that to the average apartment/housing expense and there’s precious little to expend on groceries, transportation, medical, and other household budget items.

A person would have to be singularly obsessed with the expense side of the ledger not to notice that our median salespersons, dish washers, security guards, and fast food cooks, aren’t contributing as fully to the “one man’s expense is another man’s revenue” formula as much as they could were their wages increased.

Not only is the argument that minimum wages “hurt” workers regressive and foolish, but it’s also counter-productive in terms of overall economic growth.

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Heller and the ALEC by the back door minimum wage issue

Heller 2Yesterday’s post concerned Senator Dean Heller’s (R-NV) decision to support the Republican filibuster of an increase in the federal minimum wage, focusing primarily on the economic effects and the number of Nevada workers who might be immediately affected.  However, there was a second element to Senator Heller’s objection to the measure — that the states should be the ones to raise the minimum wage levels in their jurisdictions.   As if they would?

What might prevent a state from opting to increase the minimum wage?  ALEC.

The American Legislative Exchange Council is actively working toward the goal of enacting legislation reducing minimum wages and overtime pay, or stopping localities from doing the same:

“Since 2011, politicians backed by the American Legislative Exchange Council, which has hit the headlines for previous campaigns on voting rights and gun laws, have introduced 67 different laws in 25 different states on the issue.

The proposed laws are generally aimed at reducing minimum wage levels, weakening overtime protection or stopping the local creation of minimum wage laws in cities or states. Using language similar to “model bill” templates drafted by Alec, they were put forward by local politicians who are almost always Republican and affiliated with the powerful conservative group.” [TRS] (emphasis added)

Eleven of those bits of “model legislation” eventually became law, including in New Hampshire, Arizona, and Idaho.  For state legislators not inclined to do their own drafting, ALEC has conveniently provided a piece of fill-in-the-blank model legislation (pdf) for them.  In fact, according to the National Employment Law Project, ALEC is steadfastly opposed to  (1) minimum wage laws, (2) living wage legislation, (3) minimum wage laws for starting workers, (4) increases in overtime pay.  There is model legislation to preempt state efforts in all these areas. [NELP pdf]

However Jeffersonian Senator Heller may wish to sound about “state’s rights,” the design should be reasonably clear — conservative forces backed by deep pocketed corporate sponsors want to eliminate minimum wage legislation, prevent living wage bills, and preempt state and local efforts to enact protections for working people.  So, from the bully pulpit inside the Beltway, Senator Heller is free to pontificate about the desirability of state leadership in this economic realm BUT the practical effect is to toss the issue back into the state legislatures wherein ALEC can work its magic.

Nothing would please the Austerians more than to play the divide and conquer game — happily believing that lower labor costs will entice enterprises into low wage regions.   If, for example, Nevada were to eliminate its minimum wage, then in combination with other states with such draconian statutes, that would create pressure on other states to do likewise in order to be ‘competitive.’  We know this to be a pie in the sky solution because factors like transportation, infrastructure, work force experience and training, and resource availability are essential in the business location formula.  However, it does create the mixture necessary for a race to the bottom in wages and benefits. Just the sort of thing to make corporate revenues whistle and sing to the analysts.

The second problem with this plan is that while labor costs may be a major factor in manufacturing, they are not as crucial in other economic sectors.  We’ve looked at two types of retail operations before (restaurant and grocery); the important element for these small businesses is speed of service.  Long waits and long lines do not profitability make.   The more labor intensive the enterprise the more labor costs will be a factor, and this is illustrated by looking at the labor costs as a percentage of revenue for sole proprietorships, those little businesses the GOP purports to champion.)

The percentage for food service and bars is 36.74%, for agriculture 37.60%, for construction 53.64%, for health care 77.74%, for manufacturing 38.15%, for retailing 19.40%.  [BizStats]  We can drill down into the retail sector and find that the percentages are 20.43% for clothing stores, 13.66% for food and beverage establishments, and 6.48% for gas stations.   Indeed, for all those little sole proprietorship Mom and Pop stores to whom the Republicans appeal for support — the highest percentage never goes above 35%. [BizStats]

If we draw back and look at a large picture of productivity and worker compensation there’s not much to support Senator Heller’s apparent inclination to race to the bottom there either.

Labor productivity, as defined by output per hour, increased in 63% of the 52 service related and mining industries according to a BLS Study (pdf) using 2011 figures.  “Unit labor costs fell in 11 of 47 service providing industries Unit labor costs declined more frequently in industries where productivity rose, as productivity gains offset movements in hourly compensation.” [BLS pdf]

If productivity is increasing and unit labor costs are decreasing, then why would Senator Heller and his allies in ALEC want to eliminate minimum wage laws and prevent living wage legislation?

Let’s hazard the guess that the impetus to get even more productivity (more work per hour) at even less cost has everything in the world to do with Wall Street and not a heck of a lot to do with Main Street.

Nothing so delights the financial markets as the prospect of creating more “shareholder value” by reducing the inputs — reduced costs for materials, reduced costs for fixed assets, reduced costs for depreciation, reduced costs for employee (read: worker not CEO) compensation.  As the lady once said of the turtles:  It’s earnings reports, earnings reports, earnings reports, all the way down to the bottom.  [CarnegieScience]

And there we have it. It’s workers — racing all the way to the bottom, with no federal minimum wage to underpin their economic security — it’s American workers being told that if their counterparts in China are willing to work for $1.74 per hour then they are being “overpaid” here.  And — with Senator Heller’s state’s rights excuse greasing the downward ramp.

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