Besides benefitting pandering pols, why have a $15 minimum wage?

Commentary by James Shott

Democrat presidential candidate Bernie Sanders literally screamed through a bullhorn at a campaign event in support of raising the federal minimum wage from $7.25 an hour to $15. “I’ve been pleased to march and struggle with all workers in this country who are fighting for $15 an hour and a union,” he told the crowd. “We are the wealthiest country in the history of the world, people should not have to work for starvation wages.”

The City of Seattle, Washington last year raised its minimum wage to $15 to take effect this month, San Francisco and Los Angeles, California followed suit shortly thereafter, and last week the California State Legislature passed a measure to raise the state’s minimum wage in steps to $15 by 2022, and Governor Jerry Brown pledged to sign it.

Politicians frequently advocate for higher minimum wages, which attracts a lot of positive attention from low wage earners. Campaign speeches focus on how hard it is to live on minimum wage, as if a large proportion of the workforce earns the minimum and that large numbers earning at that level are trying to support a family, and all of these people really are being enslaved by greedy businesses. Facts, predictably, tell a different story.

At the end of 2014 the number of Americans 16 and older earning hourly wages was 77.2 million. Of those, just under 3 million earned the minimum wage, about 4 percent. Among all workers that year, hourly and salaried, those earning at or below the minimum was just 2 percent, and only 1.04 million minimum wage workers held full-time jobs. Of the entire full-time workforce, only 0.7 percent earned at or below the minimum wage.

Who are these 3 million minimum wage hourly workers? Nearly half – 48.2 percent – are between 16 and 24 years of age, and 2.6 percent are 65 or older. More than half work in food preparation and related “hospitality” industries, 31.4 percent are high school graduates, 23.1 percent did not earn the high school diploma, and only 9.1 percent have a college degree.

Most of them are second or third earners in their household; the average family income of a minimum-wage worker exceeds $50,000 a year. Furthermore, most minimum wage workers graduate to higher wages quickly as their skills and experience increase, usually getting a raise in less than a year.

People generally make minimum wage when they get an after-school job, or to help out while they are going to college. They make minimum wage for jobs that require little skill, and are often supplemented by tips. People make higher wages when they gain experience or hold jobs requiring higher levels of skill. Professionals and technically trained workers make more than fast food workers, checkout clerks and grocery baggers, as it should be.

Those who run businesses have to decide how much they can afford to pay for the different types of jobs in their business. Wages are based upon the importance of each job to the business, the experience and skill of individual workers, the number of people available for each job, and the overall cost of labor and other expenses, balanced by business income.

When government edicts artificially increase labor costs, businesses must offset the increase by cutting costs, increasing income, or a combination. Every minimum wage increase of $1 an hour costs a business about $2,500 per employee per year in wages and payroll costs. Other employees making a little more than the minimum will either require a raise, or deserve one, dramatically increasing the labor costs. Something has to change to offset that expense.

Businesses likely will reduce staff, particularly cutting positions where several workers have the same job. Maybe they employ robots or other machines to do certain tasks. Have you been to a restaurant that has a touch-screen device on each table? You can order and reorder some items and pay your bill with a machine.

There now is a robot burger maker that can turn out up to 360 burgers per hour. It can grind, stamp and grill made-to-order patties. It can cut and layer the lettuce, onions, pickles, tomatoes, etc., put them on a bun, and even wrap them up to go. This device would replace three full-time kitchen staff and ultimately cost the business less.

Higher labor costs mean that prices of many items will necessarily go up, some significantly. Even as minimum wage workers get more money, they and everyone else will see their cost of living increase, gobbling up a good bit of the higher wage.


Few Americans earning the minimum wage really “need” a higher wage to survive. Analyzing the coming increase in Alberta, Canada to $15 per hour, Robert P. Murphy and Charles Lammam of the Fraser Institute concluded, “In short, the minimum wage is neither an efficient nor effective strategy for helping the working poor.”

Minimum wage earners need to work their way to higher pay through education, training and gaining experience, like Americans have done for decades. A federally mandated minimum is, and always has been, a colossal mistake. It will reduce jobs among the very people it is supposed to help.

Cross-Posted from Observations

America’s tendency toward over-spending leading to catastrophe

Commentary by James Shott

Many years ago Beatle John Lennon compared America to Rome. Some interpreted his statement as being complimentary, that America was like the Roman Empire in its glory days: the place to be. Others took it to mean that like Rome’s eventual fate, America was declining and headed for the dustbin of history.

As it turns out, both interpretations were correct, depending upon the time frame of the analysis. From its early days America was a bright spot in the world, becoming a leader in many areas and doing things never done before. The rise of the hippie movement of the 60s and 70s spawned the flower children that viewed the U.S. as tarnished and wicked. And since then, particularly in recent years, America has been transitioning to resemble Rome’s decline. Perhaps a more accurate comparison for 2015 is Greece, where out-of-control spending is about to kill the nation.

There is a steady record of troubling statistics that U.S. presidents and Congresses have negligently ignored. For example, in 1971 the federal debt was $348 billion, about 34 percent of GDP, but today it is about $18 trillion, and is more than 100 percent of GDP. This trend caused Standard and Poor’s to downgrade America’s credit rating in 2011.

Federal assistance program payments have risen from about 21 percent of GDP in the 1970s to about 70 percent today. The Supplemental Nutrition Assistance Program in 2008 cost $37.6 billion, but by 2012 totaled $78.4 billion.

The 2014 Index of Culture and Opportunity, published by the Heritage Foundation, reports how food-stamp participation has soared from 2003 to 2013, growing by more than 26 million people. In 1970, the number receiving food stamps was well below 10 million, growing to more than 20 million by 2003, and nearing 50 million by 2013. The index also shows that total welfare spending has climbed by $246 billion between 2003 and 2013. In 2014 the federal government operated more than 80 means-tested welfare programs that provide cash, food, housing and medical care to poor and low-income Americans.

Heritage’s Robert Rector notes that government spent $916 billion on these programs in 2012, and roughly 100 million Americans – nearly one in three – received aid from at least one of them, averaging $9,000 per recipient.

Many will see the increase in these numbers as necessary support from the government for Americans in trouble. Some do truly need help, but many are simply availing themselves of easy money.

Government policies and actions have kept the economy stagnant since the recession of 2007, preventing job creation that would allow millions to provide for themselves, or at least to contribute to their own wellbeing. More than 93 million Americans desiring work – nearly one in three – are not in the labor force. These policies and actions are championed by politicians, many of whom subscribe to the same socialist ideals that are killing Greece, and who benefit from having large numbers of individuals and organizations depending upon them for their survival.

And, the common theme of government wreaking havoc by interfering with business economics rises to the fore, yet again.

One example of a foolish policy is when Obamacare reduced the number of hours of the full-time workweek from 40 to 30 in an attempt to force employers to cover some part-time workers. This resulted in thousands of full-time workers becoming part-time workers, who lost 11 hours of pay a week, as businesses suddenly faced massive new expense and were forced to counteract that by reducing the number of full-time employees by cutting their hours.

Had the leftists that threw together Obamacare in the dark, smoke-filled rooms of the Capital actually thought about what they were doing, they could have avoided some of the punishment they caused these workers. No doubt that thousands of those workers now qualify for government support as a result.

Ignoring the wisdom of not raising the minimum wage, Seattle, Washington raised its minimum wage to $11 an hour in April. And guess what? Some of the workers who benefitted from the increase are now complaining that since they are making more money they will lose their housing subsidy, and are asking to have their hours reduced so that they can keep the free money flowing. Seattle’s minimum wage is scheduled to rise to $15 an hour by 2017.

The American tradition of self-reliance, of working to improve one’s plight, has been replaced by the opportunity to benefit from “free money” from government.

“If we keep on this way, we’ll reach a tipping point where there are too many people receiving government benefits and not enough people to pay for those benefits,” Rep. Paul Ryan (R-Wis.) wrote in The Wall Street Journal. Currently, about half of Americans pay no income taxes. “That’s an untenable problem. The receivers cannot receive more than the givers can give.”

The politics of government largesse and the sensible policy of holding individuals and institutions responsible for their actions, the tradition of self-reliance upon which America became the wondrous nation it used to be, are inalterably opposed. The question is, how much more of this dependency can the country survive before it becomes a Greek tragedy?

Cross-posted from Observations

Washington State and Seattle set the nation’s highest minimum wage

Commentary by James Shott

   Since 1998, Washington State has led the nation in both local and statewide minimum wage levels, which attracted the attention of Labor Secretary Tom Perez who praised the state for having “the highest minimum wage in the country for the last 15 years.” But the full picture is much less rosy than Secretary Perez would have us believe.

   In an article on Forbes.com the Freedom Foundation’s Maxfeld Nelson put things in perspective. “Although the state’s overall job growth has remained strong since adoption of the high minimum wage, growth in industries with a prevalence of low-wage workers has slowed,” he reports. Citing Bureau of Labor Statistics and Census Bureau data he writes that while Washington State’s share of the nation’s population increased by 5.7 percent from 1998 to 2014, and its share of total U.S. jobs increased by 6.3 percent, the state’s share of U.S. hotel and restaurant jobs, which could have been expected to rise commensurately, fell by 5.7 percent. Those industries are where thousands of people the higher minimum wage was supposed to help were once employed.

   In fact, while Washington’s teen unemployment rate had roughly paralleled national trends prior to the 1998 minimum wage hike, every year since then it has been substantially higher, and at one point reached 34 percent above the national rate.

   Not content with the state’s $9.47 minimum wage, SeaTac, a small city that depends heavily on businesses benefitting from its airport, decided to raise its minimum to $15 an hour in a close vote in a 2013 election. “Although the narrow drafting of the ordinance and ongoing litigation have limited the law’s scope to a mere handful of businesses and employees,” Mr. Nelson writes, “it is still having consequences. A parking company has added a ‘living-wage surcharge’ to its rates. One hotel closed its restaurant and laid off 17 employees. Employees at another hotel reported losing an array of benefits, with one stating that the $15 minimum wage ‘sounds good, but it’s not good.’”

   And now Seattle has hopped on board that bandwagon with a phased-in minimum wage, raising the minimum to $11 an hour April 1, and the rate hike will be fully implemented by 2025. Some businesses, however, are on a sped-up schedule, like Ritu Shah Burnham’s Z Pizza restaurant.

   Even though she has only 12 employees, her business is classified as part of a “large business franchise,” putting her on the fast track to raising the minimum. “I’ve let one person go since April 1, I’ve cut hours since April 1. I’ve taken them myself because I don’t pay myself,” she told a local TV station. “I’ve also raised my prices a little bit; there’s no other way to do it.”

   One of her employees was initially excited at the advertised benefits of getting a raise and having a better life. “If that’s the truth,” he told the TV outlet, “I don’t think that’s very apparent. People like me are finding themselves in a tougher situation than ever.” He will only get to enjoy the higher pay until August, when Ms. Burnham has determined she must close her business. “I have no idea where they’re going to find jobs, because if I’m cutting hours, I imagine everyone is across the board,” she said.

   Jake Spear, the director of 15 Now Seattle, a wage hike advocate group, was unmoved at the plight of these 12 employees. It’s just one restaurant, after all. “Restaurants open and close all the time, for various reasons,” he said.

   Back during the flower child era of the 1960s and 70s, the operative slogan was, “If it feels good, do it!” That slogan has more recently been co-opted by pandering politicians, labor union leaders, and others more interested in the immediate rewards of increased numbers of fawning, adoring voters and thankful union members than with the reality of lost jobs, higher consumer prices, and struggling businesses. They have another favorite slogan, as well: “Damn the torpedoes! Full speed ahead!”

   The fallacy in the minimum wage debate is that so many people – liberal feel-gooders, people new to the workforce, people in the most basic jobs and/or with the lowest skill levels, along with pandering politicians and union bosses – don’t understand the significance of varying wage levels. It eludes them that wages must be earned, not merely given like a gift, and that higher wages require more training, knowledge, skill and experience from workers than lower wages do. There is more involved in earning a high wage than just getting hired and showing up for work. You have to contribute something positive to the business you are fortunate enough to work for, and the greater your contribution, the more you are able to earn.

   A mandated high minimum wage contributes to the entitlement mentality, where people expect to exist without having to contribute very much to their own well-being. This is not a positive development for a society that was built by generations of Americans who were hard working and self-reliant.

   Detroit and Baltimore are graphic examples of the failure of liberal policies, and now we see Washington State and Seattle heading down that same path.

Cross-posted from Observations

If we raise the minimum wage, we’ll get these fantastic results!!

The narrative of the left is that even people who have never had a job and/or don’t have any skills deserve and need a “living wage.” Merriam-Webster defines a living wage as “a wage sufficient to provide the necessities and comforts essential to an acceptable standard of living,” which varies widely depending upon where one lives.

The drive for a hike in the minimum wage to $10.10 an hour, or sometimes as much as $15 an hour, lives on as a cause du jour for some Americans, defying the laws of business economics. Workers, labor unions, and politicians, support the wage hike through lobbying efforts, civil demonstrations, and labor strikes often paid for by labor unions.

These folks reject out of hand the fact that every job has an actual calculable value in the business it is a part of that takes into account the benefit to the business’s entire operation, the qualifications of the worker, and other real factors, unlike what drives the minimum wage hike: it is a nice idea, makes people feel good, helps unions raise members’ wages, and garners support for politicians.

The National Center for Policy Analysis (NCPA) notes that minimum wage hike proponents support an increase because it would save the government money in social support services, since those whose wages rise will be less likely to seek and need welfare benefits.

Research by the Economic Policy Institute shows that increasing the minimum wage to $10.10 an hour would reduce welfare spending by $7.6 billion, but that is only 3.8 percent of the total of $200 billion in welfare spending that taxpayers fund. Not that saving seven or eight billion is a bad idea.

However, in its efforts to give to people things they should earn through personal effort, the left focuses on the benefits of their ideas, and ignores the negative consequences.

This erroneous reasoning is responsible for a long and growing list of government programs the negatives of which far outweigh their benefits. The Community Reinvestment Act combined with repealing Glass-Steagall, and Operation Fast and Furious spring quickly to mind.

Addressing the negative impact of a wage hike, NCPA cites research by Ben Gitis of the American Action Forum asserting that raising the minimum wage will result in lost jobs. His analysis shows that 2.2 million new jobs would not be created, totaling a stunning $19.8 billion in lost earnings, if the minimum wage is increased.

The truth is that the number of minimum wage earners who really need a living wage is tiny. Only about 3.6 million workers, or 2.5 percent of all workers, earn the minimum wage, according to Bureau of Labor Statistics, and teenagers living at home comprise 31 percent of that group. And 55 percent are 25 years old, or younger, mostly inexperienced and just learning skills. Therefore, of all workers over 25, only 1.1 percent would be affected by a wage hike that would cost 2.2 million future jobs.

Combine that small number with the fact that well over half of workers earning less than $9.50 an hour are the second or third earner in a family, two-thirds of whom earn more than $50,000 a year, and that critical number shrinks even more.

As a percentage of hourly workers those earning the minimum wage has shrunk dramatically since 1980, when they comprised 15 percent of that group. Today, that portion is just 4.7 percent. And more than half of them are part-timers working less than 30 hours a week.

If you earn the minimum wage it certainly is appealing to imagine getting an increase in your wage of about half. But a hike in the minimum wage has to have solid economics-based reasons behind it, or it shouldn’t happen. The economic reality is that the numbers just don’t add up to support a $10.10 an hour minimum wage.

This wildly popular idea evolves from not understanding business and basic economics. How, in a country with education spending on average of $11,000 per student per year, can there be so many who have no idea about things like supply and demand, and how high costs, high taxes, excessive regulations raise prices and decrease sales.

The United States has just lost the top spot in the world in productivity to China, the first time since Ulysses S. Grant was president that America has not led the world.

A friend who ran a company doing business in several foreign countries was talking about his company’s expansion into China a few years ago. At the time China had 1.35 billion people, he said: 100 million communists, and 1.25 billion capitalists.

While Communist China embraces capitalist principles and becomes the most productive nation, the United States, once the bastion of free enterprise, increasingly embraces socialistic mechanisms and lost the lead in productivity for the first time in more than 130 years.

Most likely few of the proponents have ever had to make a payroll or keep a business viable in the face challenges like competition, high taxes and onerous regulations.

Foolish ideas like raising the minimum wage without sound reason helps explain our loss to China and our overall anemic economy. 

The scare mongering continues on the debt ceiling and default

There is great wailing and gnashing of teeth over the potential for catastrophe if the debt ceiling is not raised, but whether the ceiling is raised or not, the underlying problem will remain to be reckoned with yet again.

We are warned against defaulting on the national debt, which President Barack Obama tells us will have the most dire consequences. However, default really isn’t an issue, as economist and former long-time Federal Reserve System Chairman Alan Greenspan explained: “The United States can pay any debt it has because we can always print money to do that. So there is zero probability of default.”

While Mr. Greenspan’s statement is technically true, printing even more money to pay the nation’s debts has its own set of economic problems, and heaven knows we have enough of those already.

Another reason paying our debt service isn’t a problem is that even if the debt ceiling isn’t raised so that the government can borrow more money, there is more than enough money coming into the treasury each month to pay the interest on the debt multiple times over, although that has its problems, too.

But the best reason is contained in Section Four of the Fourteenth Amendment to the U.S. Constitution, which directs, in no uncertain terms, that "the validity of the public debt of the United States, authorized by law, including debts incurred for payment of pensions and bounties for services in suppressing insurrection or rebellion, shall not be questioned." The Constitution commands the president to make good the debts of the United States, and that includes both what our nation owes to bondholders, and the sums promised in legislation to those receiving pensions set by law, according to legal scholar Garrett Epps.

What that means is that if the debt ceiling isn’t raised President Obama will be forced to make some tough decisions on what won’t receive funding so those mandated payments can be made, and since much of Mr. Obama’s popularity comes from spending money, there could be some uncomfortable and long days in the White House.

However, the scare mongering about the catastrophe facing the nation and the resulting public outrage will likely force an increase in the debt ceiling for the 80th time since 1940.

President Obama tells us this won’t increase spending, but since it does increase the limit on spending, does anyone really doubt that spending will soon increase, and before long the politicians will want yet another debt ceiling increase.

Sometimes there are compelling reasons for deficit spending, like WWII, the 9-11 attacks, and the banking crisis that threw the country’s economic system into crisis, but most times it is just a bail out from fiscal irresponsibility. Sometimes the ceiling has been raised by a small amount, other times by a large amount, and sometimes it’s been raised temporarily with provisions for a "snap-back" to a lower level.

“Weighing benefits against costs is the way most people make decisions – and the way most businesses make decisions if they want to stay in business,” says the eminent economist Dr. Thomas Sowell. “Only in government is any benefit, however small, considered to be worth any cost, however large.”

And that is the crux of the problem. People who are elected to represent the interests of the citizenry do not use common sense and basic economics when making decisions we pay them to make.

Trying to obtain benefits without considering either the cost or the likelihood of success not infrequently produces bad programs, and bad programs breed and multiply in Washington, DC, and live forever.

The federal government is simply too big, too powerful, too intrusive, too expensive, and too undisciplined, and as a result there are dozens of duplicate programs, and more than a few programs that do not, and never have, achieved success, but are still being funded. And there are billions going to fraud and abuse.

Attempts to reign in waste, fraud and abuse have mostly lacked serious action, and efforts to cut spending to match income likewise have accomplished little.

And atop that lackluster record we have the biggest deficit producer in history in the White House.

At the end of FY2000, four months before George W. Bush took office, the national debt totaled $5.67 trillion. At the end of the fiscal year that Barack Obama took office it had risen to $11.91 trillion. That number is skewed higher due to the $151 billion TARP program President Bush implemented, $147 billion of which was repaid after Mr. Obama took office.

At the end of FY2013 the debt stood just short of $17 trillion. Excluding FY2009, when both Mr. Bush and Mr. Obama held the White House, the president and the mostly-Democrat-controlled Congress added more than $5 trillion to the national debt, with average deficits of $1.163 trillion from FY2010 – FY2013.

It is way past time that government face up to reality and live within its means. The president and Congress must get rid of unproductive programs; eliminate, or at least significantly reduce, fraud, waste and abuse; shut down or downsize federal departments; and implement business-like fiscal standards. In short: do their job.

Will a unionized hospital provide better care for local patients?

Commentary by James H. Shott

A recent news article focused on a possible labor union drive at Bluefield Regional Medical Center, but furnished few details. That’s because neither the hospital nor the union(s) were talking.

It is difficult to imagine that unionizing any of BRMC’s departments will help its patients, and there is evidence that unionized hospitals not infrequently have serious problems. This cloak of secrecy does nothing to answer the public’s questions about what is going on.

Labor unions are not inherently bad. They were once the major factor in balancing the employee/employer relationship at a time when workers were often treated badly. However, since government stepped in and enacted laws regulating the workplace, there isn’t much for unions to do along those lines. Instead, they now negotiate benefits for workers, like higher wages, shorter hours, and worker-friendly work rules.

Union members know how to do their jobs, but the unions to which they belong know very little about running the businesses in which they organize workers, or just aren’t concerned about it. They could be valuable partners in those businesses, contributing to the success of the organization so that everyone benefits, but they seldom are. Most often they are adversaries of management, instead. Thus when unions negotiate perks for their members, businesses must make changes to accommodate these perks that inevitably increase the company’s costs and modes of operation, making the business less efficient and less competitive against non-unionized companies.

Some of the most damaging aspects of a union workforce are the work rules unions insist on, many of which defy common sense and good management practices. Some examples:

1) A repair crew that consisted of an electrician, a plumber/pipefitter, a carpenter and a crew leader were controlled by a work rule dictating that if the crew was sent on a job that had an electrical problem, for example, only the electrician could work on it. If he needed help, for even the most basic forms of assistance not requiring specialized knowledge or training, a second repair crew had to be called in, meaning that eight people were on a job that required only one electrician and someone to assist, and perhaps a crew leader.

2) A common problem is that when layoffs become necessary work rules that determine who gets laid off and who doesn’t favor seniority. It’s not about who does the best work, but who’s had the job the longest.

3) One work rule required all members of an 18-person crew to be present before the crew could work. If one person called in sick the crew couldn’t work, but still got paid. This rule allowed – even encouraged – abuse, and crew members set up a revolving schedule to call in sick.

Private sector union membership has fallen dramatically, from 24 percent in 1973 to less than 7 percent in 2011. However, union membership in hospitals has increased by nearly one-third in the last decade. Along with the increased membership is a huge increase in hospital strikes. The Federal Mediation and Conciliation Service reports that from 2009 to 2010 hospital strikes increased by 70 percent and from 2010 to 2011 that number rose by an additional 73 percent, producing an increase in the number of strike days from less than 800 days in 2009 to more than 1,000 days last year.

What does a hospital do when caregivers walk out? It hires temporary caregivers, and these people are unfamiliar not only with current patients, some of whom are critically ill, but also hospital procedures. In the case of a California strike 23,000 hospital workers walked out. Is it possible to hire 23,000 replacement workers on short notice without at the very least a high potential for mistakes? Did all of those replacements have the same or higher skill level as the strikers?

An article by Capital Research Center’s Matthew Vadum reports: “A major 30-year study found that strikes are, in fact, deadly. Jonathan Gruber of MIT and Samuel Kleiner of Carnegie Mellon University studied strikes by New York State nurses between 1984 and 2004. After controlling for factors like patient demographics and disease severity, they found that ‘nurse’s strikes increase in-hospital mortality by 19.4 percent and 30-day readmission by 6.5 percent for patients admitted during a strike.’”

“Strikes are extremely costly,” he went on to say. “Hospitals must pay replacement nurses and additional security, while losing business, as patients opt for other hospitals. Last year’s strike by 600 D.C. nurses, for example, cost the hospital $6 million.” Commenting on a strike by 12,000 Minnesota nurses, he said it cost “about $46 million for substitute nurses,” almost half of which was for a day of mandatory orientation.

Once ensconced, unions pursue their own narrow goals, while employers are often held hostage to demands that are one-sided and often excessive. In the case of a hospital, this scenario has little potential for a positive result.

At the very least we can expect a successful union drive at BRMC to increase costs, and therefore requests for rate increases.

And if the union drive is successful at BRMC, it is likely that unions will attempt to organize other regional facilities.

Cross-posted from Observations

The rap on the rich: They take a lot, but give very little in return

 Commentary by James H. Shott

For as long as there have been economic differences between people there has been some level of jealousy and envy of wealthy people by the less wealthy. At times unscrupulous politicians and others who appeal to people's emotions and prejudices work very hard to ramp up the level of discontent among those of lesser wealth. The current campaign against the rich, which began in 2009 with the swearing in of Barack Obama, is the most determined effort in a long, long time.

Mr. Obama has succeeded at few things in his ignominious three years in office, but he is perhaps the greatest of our presidents in his ability to stir up bitterness among those who believe they are victims of the wealthy, as well as in persuading those who don’t realize it that they also are victims of the rich.

Perhaps he subscribes to George Bernard Shaw’s insightful observation that the guy that robs Peter to pay Paul can always count on the support of Paul, Peter representing the wealthy targets of Mr. Obama’s class-envy obsession, and Paul representing those who receive continually increasing amounts of bounty from their government, courtesy of the top 10 percent of earners who pay 70 percent of the cost of our overweight and extravagant government.

The president’s strategy makes sense: If your policies have only made a bad situation worse, and what it takes to make things better is in conflict with your ideological programming, you have to distract attention with a bogeyman, and get people all fired up against the bogeyman so they won’t notice how badly you are doing.

Let’s examine some well known bogeymen from history: The robber barons.

The term engenders visions of mean, evil, wicked, bad, and nasty businessmen amassing personal fortunes through the persecution and bullying of the common people through unscrupulous practices and even illegal schemes. The term carries such strong images that when it is heard or read, revulsion is automatic and immediate.

Questioning the conventional wisdom that the robber barons were really the scum of the Earth is nearly as bad an idea as questioning that those who oppose Barack Obama policies are racists. That’s just the way it is, and if you know what’s good for you, you won’t question it.

And so, such villains as John D. Rockefeller, Cornelius Vanderbilt, John Jacob Aster, J.P. Morgan, Grenville Dodge, and James J. Hill became some of the most vilified men in American history. Accounts portray these vicious, exploitative capitalist predators as victimizing their customers through thinly veiled acts of larceny for their personal benefit.

However, in the continuing effort to push back the boundaries of ignorance, we bravely enter the world of the robber baron to see just whether they were as dreadful as we’ve been told all these years. And, predictably, someone dares to offer an alternative view of these contemptible characters.

“Time: that is the key,” Matt Ridley, explains in The Rational Optimist. “The true measure of something’s worth is the hours it takes to acquire it. If you can get something made efficiently by others, then you can afford more of it. This is what prosperity is: the increase in the amount of goods or services you can earn with the same amount of work. The robber barons of the late 19th century usually got rich by making things cheaper” for others, he wrote.

Consider Cornelius Vanderbilt, the first man referred to as a “robber baron” by the New York Times. His railroad building activities resulted in the reduction of rail fares; rail freight charges fell by 90 percent between 1870 and 1900.

Likewise, Andrew Carnegie, in the process of enriching himself enormously, reduced the price of steel rail by 75 percent, and John D. Rockefeller cut it by 80 percent. In fact, Mr. Ridley tells us that during those 30 years the per capita GDP of Americans rose by 66 percent. “They were ‘enricher-barons,’ too,” he proclaims.

If because of Cornelius Vanderbilt folks can get where they want to go quicker, and if that also makes it possible for them to work fewer hours to earn the ticket price, he has made a good living for himself while at the same time enriching virtually everyone else.

While not technically a robber baron, Henry Ford certainly became wealthy at the expense of his customers. His first Model T cost $825, but through his efforts four years later it cost only $575, and only $360 a few years after that. While Henry was getting rich, he was making it easier for others to afford an automobile.

People acting in their own self-interest not only make things better for themselves, but for the rest of us, as well. This is a basic tenet of economics, and we really need to pay more attention to such wisdom, and leave counter-productive envy behind.

A strong message that comes from Mr. Ridley’s assessment of the robber barons is that the very wealthy almost always engage in activities that benefit everyone as they gain wealth. Wonder why this message isn’t more widely circulated? Maybe it’s because envy-mongering gets better results.

Cross-posted from Observations

Punishing productive Americans with higher taxesis foolish

Commentary by James H. Shott


By now nearly every American who pays attention to the news has heard about the enormous national debt and the annual $1.5 trillion budget deficits, and realizes that the US has a serious spending and debt problem. We owe $14 trillion and routinely spend 40 percent more each year than we take in, which increases the debt even more. To sensible people, that signals a strong need to make substantial changes.

But not Washington Democrats. They see the solution to our unsustainable national spending addiction as essentially maintaining the current level of spending, with maybe a little trimming here and there, then increasing taxes on the rich. They don’t want to reduce support payments or services to their constituents and risk losing votes, and they believe that increasing government revenue through tax increases on the wealthiest Americans is the way to fix the problem without reducing government handouts.

This supposed solution is based in fantasy, and is not what sensible people that find themselves in a similar situation would do. Smart folks would realize they had created a financial crisis through foolish spending practices and they would reduce spending to cover just the necessities; try to find ways to increase income, perhaps through working an additional job or trying to get a better-paying job; or sell some things they don’t really need. In short, they would make the necessary sacrifices and endure the pain until things smoothed out.

If they weren’t smart, they would probably just keep spending too much and tell their employers they need more money, which parallels what the Democrats want to do. Those folks would soon declare bankruptcy.

And so, instead of spurring private sector expansion to broaden the tax base and increase tax revenue, and paring down spending to match income, the president and congressional Democrats prefer to simply make the rich pay more by increasing their tax rate by 13 percent.

What does that mean to a person at this income level? A married person, earning $1,000,000, with two deductions, and taxable income of $986,800 pays almost $323,000 just in federal income taxes. If President Obama succeeds in raising the top tax rate of 35% to the pre-Bush tax cut level of 39.6 percent, this person will pay an additional $45,000 in income taxes each year.

Democrats reason that folks in this income range have more money than they need, and won’t notice a few tens of thousands of dollars more in tax payments. But that analysis defies common sense. People routinely use the money they have available, regardless of how much that might be. Perhaps the wealthy are like everyone else in that regard.

So, what would the person who earns a million bucks do with that $45,000 if the government didn’t take it? Would they stuff it in their mattress, bury it in the yard, or hide it in their freezer? No, they would invest it in business, or securities. They would donate some or all of it to charity, or purchase things they want and need, like household goods, a car, a boat, or a house. They would put it to some productive economic use, which is far more beneficial than having Uncle Sam confiscate that $45,000, and much of it be used to pay bureaucrats to disburse it through government spending, which is highly inefficient and often wasteful.

The tax hike so cherished by the president and fellow Democrats is a response to the impulse to punish the wealthy for being successful. But doing away with the Bush tax rates for high income earners would produce only $500 - $600 billion over 10 years, a meaningless sum when compared to budgetary spending of more than $3 trillion a year.

Even if the government confiscated every cent millionaires and billionaires made this year – about $685 billion – it would be less than half this year’s budget deficit, and just one-fifth of annual spending.

Furthermore, says economist Thomas Sowell, “history has shown repeatedly, under administrations of both political parties, that there is no automatic correlation between tax rates and tax revenues. When the tax rate on the highest incomes was 73 percent in 1921, that brought in less tax revenue than after the tax rate was cut to 24 percent in 1925. Why?” And here is the part of Dr. Sowell’s statement that people need to pay attention to: “Because high tax rates that people don't actually pay do not bring in as much hard cash as lower tax rates that they do pay. That's not rocket science.”

Raising their tax rate will encourage the wealthy to look for ways to shelter that money from taxation. This obvious reality escapes those on the left, who do not understand the capitalist system, but think they know how to change it to make it better. Their past efforts to improve capitalism are responsible for all of our current problems.

But just because raising taxes on the rich makes no sense economically doesn’t mean it has no value at all. Which is why President Obama is busy trying to foster envy of the wealthy among those who aren’t wealthy: it pays off at the ballot box.

Cross-posted from Observations

The Occupy Wall Street protest: Not quite ready for Prime Time

Commentary by James H. Shott

The protest movement known as Occupy Wall Street is in its fourth week and has spread from its original site in New York to other cities. This movement is terribly confused and without focus, but the occupywallst.org Website says this about the purpose of the protest: “Occupy Wall Street is a leaderless resistance movement with people of many colors, genders and political persuasions. The one thing we all have in common is that we are the 99% that will no longer tolerate the greed and corruption of the 1%.”

Some reports tell us that some protesters had cited serious issues and that some express their ideas clearly and effectively. But while they identify some real problems that need correcting, like the money connection between politicians and special interests that produces inequities, they recognize only the connection between corporations and politicians, and ignore the connection between labor unions and politicians. Both are equally inappropriate and harmful.

According to the Christian Science Monitor, protesters and sympathizers say that “it’s Wall Street bankers who should be arrested for their role in the country’s economic difficulties. ‘The world's economy has been wrecked by these rapacious traders,’ author Salman Rushdie [of “Satanic Verses” fame] tweeted. ‘Yet it is the protesters who are jailed.’”

If you look back to 1977 and examine what the government did relative to banking, you’ll see that “Wall Street banks” are only one factor in the financial crisis, and much of what those banks did was what government over-regulation forced or allowed them to do.

The Monitor’s story continued: “On the ‘Wall Street Campout’ Facebook page, the protest is described as ‘an ongoing nonviolent demonstration opposing what participants view as negative corporate influence over US politics.’”

It isn’t difficult to find cracks in this logic, like, for example, the assumption that 99 percent of the people in the United States are philosophically bound together against the other one percent, and that the one percent indulges in greed and corruption and is the cause of all discomfort. But the real weakness of the movement is the gross logical fallacy in its method of identifying demons, and the sheer absurdity of the demands the movement thinks will fix things.

On the Occupy Wall Street Website, a proposed list of demands includes:
• Immediate debt forgiveness for all
• Free college education
• Elimination of free trade
• A $20-an-hour minimum wage
• Guaranteed “living wage” regardless of income
• Open borders
• $1 trillion government spending on infrastructure
• $1 trillion government spending on ecological restoration
• A racial and gender equal rights amendment and
• Easier unionization voting procedures

If that left you scratching your head, it gets worse: The Website asserts that “these demands will create so many jobs it will be completely impossible to fill them without an open borders policy.”

Watching video interviews of some of the protesters, it is clear that the movement is comprised of people who have no idea what economics is all about. One young male protester gave a spirited and well-expressed, but logically incoherent, criticism of the capitalist economic system, which he said needs to be replaced. But when asked what he would replace capitalism with, he just stood there, as if he’d never thought about that.

The philosophy, such as it is, behind this movement is a classic example of what economist Dr. Thomas Sowell calls “stage one thinking,” which is failing to look beyond the immediate result of an action. To them, “if capitalism is the problem, getting rid of capitalism is the solution. That’s all we need to know, now let’s protest.”

Another young man gave this moving testimony: “I was born to be here right now. The Founding Fathers have been passing down the torch to this generation to make our country great again.” Clearly, this fellow has no idea what made the country great, but he’s ready to fix it, nonetheless.

Our capitalistic system is so distorted by over-regulation, political favoritism and other government interference that it doesn’t work like it is supposed to, so the protesters blame this distorted version of capitalism for their discontent and want to replace it with “something else.” This position is based on ignorance, and if they had any idea what free markets are and how a capitalistic economy is supposed to work … but, like they say, “If a frog had wings …”

Right now this movement is an exercise of only the passionate expression of discontent and lacks a coherent and compelling message. It will not be taken seriously until it becomes organized and focuses on identifying specific problems and making sensible suggestions for fixing them.

Simply saying “we need to get rid of capitalism and punish greedy bankers and corporate managers. And then give us a free college education, a $20-an-hour minimum wage, wipe out all our debts, open the borders so that anyone who wants to can come in, spend money we don’t have on infrastructure and ecological restoration, abolish free trade, and let government make all of our decisions for us” doesn’t make the grade.

Cross-posted from Observations

Self-annihilation: Watching as America methodically kills itself

Commentary by James H. Shott

Of the interesting comments about democracy is this one attributed to Scottish historian Alexander Fraser Tytler: “A democracy cannot exist as a permanent form of government. It can only exist until the voters discover that they can vote themselves largesse (money-benefits) from the public treasury. From that moment on, the majority always votes for the candidates promising the most benefits from the public treasury with the result that a democracy always collapses over loose fiscal policy followed by a dictatorship. The average age of the world’s greatest civilizations has been 200 years."

Alas, those are not Mr. Tytler’s words, but it is nonetheless germane today.

The United States of America is about 230 years old, depending upon exactly where you begin counting, a few years longer than that prediction allows. Evidence abounds, however, that our representative democracy is collapsing around us, and for exactly the same reasons the statement noted: the people have realized that they can vote themselves largesse from the public treasury.

Credit the exceptional foresight of our Founders for setting up a democratic form of government that allowed the US to evolve into the greatest economy and strongest nation in history. It’s a pity that we haven’t had the intelligence and self-discipline to hold fast to their brilliant format. Instead, we’ve succumbed to the self-serving behavior of pusillanimous Americans, who are responsible for turning the United States into just one more collection of socialistic, government-dependent momma’s boys.

Another insightful quote about democracy comes from 1960s Yippie leader Abbie Hoffman, who said, “Democracy is not something you believe in or a place to hang your hat, but it's something you do. You participate. If you stop doing it, democracy crumbles.”

But today what passes for participation is often a “me-centered” exercise, where the political class goes to bed with various special interests for their mutual benefit. Historian and economics writer Gary North terms it thusly: "Thou shalt not steal, except by majority vote."

Nothing illustrates this better than the current budget battle on Capitol Hill, where most Democrats and more than a few Republicans strongly resist efforts to reduce spending, cut the budget deficit, and begin to pay down the $14 trillion-plus – $14,100,000,000,000 – national debt.

So far, the big spenders in Congress give the clear impression that in a budget of $3.6 trillion – $3,600,000,000,000 – with a budget deficit of $1.3 trillion – $1,258,000,000,000 – they can’t imagine cutting more than a few billion, which is a grain of sand on a beach compared to the entire deficit.

The size of these numbers is part of the reason many Americans either don’t comprehend the problem, or just can’t cope with it; how many of us, or them, can really grasp how many a billion of something is? Or a trillion? All those digits – 13 of them for a trillion – make your head hurt, cause your eyes to glaze over.

So let’s take eight digits off those huge numbers and make them small enough to understand. The budget then becomes $36,000, the deficit is $12,580, and the National Debt is $141,000.

Pretend your friend Joe makes $36,000 a year, but last year he spent $48,580, $12,580 more than he made. And for years on end he’s spent lot’s more than he earned and now owes $141,000.

Joe didn’t have enough money to buy all the stuff he wanted, but bought it anyway, hasn’t paid down any of his debt for several years, and in fact has been adding to it every year. His creditors are beginning to get nervous. And yet, Joe plans to spend more than he makes again this year, adding even more to his debt.

Joe looked over his budget and couldn’t find more than about $60 worth of things he could do without – like one meal at a restaurant for him and the wife, or beer for a couple of months – too little to meaningfully reduce his mounting debt.

He reasons this way: “Well, we shouldn’t have over-spent all those years. But we did, and my wife and kids are used to this lifestyle, and it just wouldn’t be fair to make them cut back. We can stretch it another year or two while we prepare to make cut-backs.”

Do you think Joe is financially irresponsible, and maybe crazy?

This is essentially how Congress and the administration are responding to fiscal conservatives who insist on substantive spending cuts to try to balance the budget and reduce the national debt.

Most of our elected leaders seem unfazed by the reality that we don’t have the money to continue doing all the stuff they want to continue doing, and apparently are immune to the common sense of it all. The country now borrows 40 cents for every dollar it spends. That can’t continue; it has to stop. Now.

Yes, there will be pain. But like the guy who drank too much while his friend paid the tab, he’s the one that will have the hangover.

If we are smart, we will learn the lesson that having the self-discipline and good sense to stick to the plan our Founders gave us is crucial if we’re going to survive.

Cross-posted from Observations