Tag Archives: Basic Economics

Will raising the minimum wage cause job creators to lay off employees?

Basic economics: when you raise the price of something, people buy less of it
Basic economics: if you raise the price, then people will buy less of it

Right now, all the candidates for President from the Democrat party are competing with one another to see who can buy the most votes using taxpayer money. One popular Democrat policy to buy votes is to raise the minimum wage. Democrats reason that minimum wage increases are great, because workers will have more money to buy stuff. What could go wrong?

Well, I want to talk about this policy from a theoretical point of view, then give an example of how it works in practice.

Abstract from a National Bureau of Economic Research study:

We estimate the minimum wage’s effects on low-skilled workers’ employment and income trajectories. Our approach exploits two dimensions of the data we analyze. First, we compare workers in states that were bound by recent increases in the federal minimum wage to workers in states that were not. Second, we use 12 months of baseline data to divide low-skilled workers into a “target” group, whose baseline wage rates were directly affected, and a “within-state control” group with slightly higher baseline wage rates. Over three subsequent years, we find that binding minimum wage increases had significant, negative effects on the employment and income growth of targeted workers.

[…]Over the late 2000s, the average effective minimum wage rose by 30 percent across the United States. We estimate that these minimum wage increases reduced the national employment-to-population ratio by 0.7 percentage point.

That comes out to 1.4 million workers who lost their jobs, thanks to minimum wage mandates.

Why does it hurt young and unskilled workers most? Because those workers don’t produce as much as older, more experienced workers. So, if all the salaries go up, employers keep the most experienced employees and lay off the youngest, and least experienced employees. This is why the youth unemployment rates of socialist countries in Europe are so much higher than the overall unemployment rate. And just to be clear, minorities are disproportionately harmed by minimum wage laws, since they are the ones who are often trying to move up through those entry-level jobs.

Here’s an example of how this works in reality, from San Francisco, a Democrat-run city.

ABC News reports:

San Francisco’s minimum wage is currently $11.05 an hour. By July of 2018, the minimum wage in San Francisco will be $15 an hour. That increase is forcing Borderlands Bookstore to write its last chapter now.

[…]Borderlands was turning a small profit, about $3,000 last year. Then voters approved a hike in the minimum wage, a gradual rise from $10.75 up to $15 an hour.

“And by 2018 we’ll be losing about $25,000 a year,” he said.

It’s an unexpected plot twist for loyal customers.

“You know, I voted for the measure as well, the minimum wage measure,” customer Edward Vallecillo said. “It’s not something that I thought would affect certain specific small businesses. I feel sad.”

That was in 2018, but strangely enough, Democrat voters haven’t learned their lesson. They still think you can vote people more money, and not ask where the money is coming from.

Shawn sent me this story about Seattle, another Democrat-run city.

Excerpt:

Restaurants Unlimited, a Seattle-based chain with restaurant locations in 47 US cities, announced on Sunday it was seeking Chapter 11 protection, citing “progressive” wage laws.

The company, which has operated since the Lyndon Johnson Administration, said rising labor costs—part of a national trend of government-mandated minimum increases—were part of its decision.

“Over the past three years, the company’s profitability has been significantly impacted by progressive wage laws along the Pacific coast that have increased the minimum wage,” Chief Restructuring Officer David Bagley said in court filings, The Seattle Times reports. “As a large employer in the Seattle metro market, for instance, the company was one of the first in the market to be forced to institute wage hikes.”

[…]BLS data show that New York City experienced its sharpest decline in restaurant jobs since 9/11 following its passage of a $15 minimum wage law. In California, a local newspaper recently detailed how an entire business district virtually disappeared following the city’s aggressive minimum wage push.

Restaurants Unlimited’s announcement came a day before the Congressional Budget Office released a report estimating that a House bill designed to raise the federal minimum wage to $15 an hour would cost 1.3 million jobs.

Now, you might say to me “But Wintery, Democrats are the party of the little guy, why would they vote for something that would leave workers unemployed?” And there are two answers to that. First, Americans who work for a living tend to not look to the government for support. Second, Americans who work for a living tend to dislike when their taxes are raised to pay for people who aren’t working. Democrats are the party of higher taxes and bigger government. They always oppose letting people keep what they earn, and they always want the government to take free market solutions to health care, etc. so they can use the provision of health care to buy votes. So for them, kicking 1.3 million people out of work is a benefit.

When it comes to economics, we know what works. Trump cut taxes, and unemployment for all races is at a record low. If you want to reverse that, and have more people unemployed, living off taxpayer’s, then vote for Democrats.

Why is America so much more prosperous than other nations?

It occurred to me that young people are being taught in government-run schools that central planning of the economy by the federal government works better than allowing states to decide policy for themselves. Naturally, the students – lacking life experience and at the mercy of the unionized teacher’s grading pen – have no choice except to be indoctrinated. But what are the facts?

The genius of America is that the Founding Fathers allowed the federal government to only have power in certain areas of life. Other areas of policy were delegated to the states. This allows states to try different policies to see what works best, or even just what works best for them. Then the other states have the option to emulate that success, or continue doing what doesn’t work. States that do what works will see more success, with more businesses and people migrating to their states. States that persist in doing what doesn’t work will see business and taxpayers flee. That is the genius of America’s design.

Federalism encourages states to operate according to the “principle of subsidiarity”, which is an economic principle that states that problems are best solved at the lowest level possible (individual -> family -> church – > business -> community -> local government -> state government -> federal government). This is because the people at the lowest level have the most KNOWLEDGE about how to solve the problem.

Case study: right-to-work laws

Let’s look at an example – unions and right to work laws. Starting after world war 2, some states decided to pass right to work laws. These laws allowed workers to decide for themselves whether to join a union or not. Since workers had the choice about whether to join the union, the union had to care about the workers and advocate for them, instead of enriching themselves at the expense of the workers via corruption and thuggery.

Here is how different states adopted right to work laws at different times:

Map of states showing adoption of right-to-work laws
Map of states showing adoption of right-to-work laws

What happened in these states? Well job creating businesses started to move from forced-union-membership states to right-to-work states. Why? Because unions were stopping them from innovating. Companies would figure out new ways to improve productivity, such as using machines and computers. But the unions would step in and insist that the old ways were best. The unions wanted their union members to just be able to do the same job, e.g. – pulling a lever over and over, for the entire 35 years of their career. And the unions wanted their members to be paid like a software engineer or a doctor for pulling a lever over and over. The unions also wanted to make sure that underperforming workers could never be fired, or replaced. And so on. Companies realized that they couldn’t compete in a global market like this, so they got up and left for right-to-work states.

Here’s what happened next:

Rates of employment in forced union states vs right to work states
Rates of employment in forced union states vs right to work states

States with right-to-work laws never said that there couldn’t be unions, only that workers wouldn’t have to join a union to work. And in right-to-work states, not only did workers not join unions, they voted not to unionize at all. This resulted in a massive decline in private sector unions in America:

Decline in private sector union membership
Decline in private sector union membership

As a result of job creating businesses not being hampered by union corruption and thuggery, American businesses quickly outpaced their rivals in forced union membership states in productivity, as measured by GDP. They also outpaced the productivity per worker in other economically illiterate countries. Why? Because allowing companies to innovate meant that workers were using more machinery and computers to do their jobs. They learned new skills. Underperforming workers could be replaced with workers who were willing to grow and adapt. Non-union workers higher productivity allowed them to find other jobs if they were laid off.

Right to work states innovate, creating more skilled workers
Right to work states innovate, creating more skilled workers

The job security of the American worker comes from his improved worker productivity – not from the union. Not only did unemployment go down in right to work states (more jobs!) but salaries and benefits also increases, as companies had to compete with each other for workers. However, companies were ok with paying more for workers, because they would rather pay ONLY the workers who deserved it, rather than pay one rate for all union workers, regardless of performance.

This article from the far-left New York Times explains how slaries and benefits rise when job creators move to right-to-work states: Income Rises When Right-to-Work Laws Are Passed because job creators must offer workers a lot in order to get them to sign. Not just salaries and benefits, but realistic development plans to grow the workers skills, making them even more resistant to layoffs and economic downturns.

Quote:

While some persons may favor right-to-work laws largely on philosophical grounds (people should have the freedom to decide whether they want to belong to a union or not), the major reason I support such laws is that they seem to promote prosperity — specifically, higher incomes. Real personal income in the right-to-work states rose nearly twice as much as in other states from 1970 and 2013.

To be sure, most of that reflected higher population growth in right-to-work states — there was massive in-migration to these states from the states denying workers the right to not join a union. Yet even after correcting for population growth, income per person on average rose somewhat more in the right to work jurisdictions. Capital moves to right-to-work states with a more stable labor environment, and that increases labor demand and, ultimately, income and wages.

Although unions mostly died out in the private sector, the ones that remained actually functioned well as unions – focusing on their workers instead of enriching union bosses. They had to, because if they didn’t, then the workers would just opt out of them. The only places where unions still survive is in the public sector, i.e. – government. This is because government is (by law) a monopoly, where consumers have no choice except to accept the garbage that they are offered. They can’t go anywhere else for a lower price, or a better product, or a better service. Public sector unions are immune to innovation, because they lobby the government to prevent any improvement or accountability.

Here is an example of a public sector union’s effort to “help the customer”:

Political contributions by the American Federation of Teachers union
Political contributions by the American Federation of Teachers union

And here’s what those efforts to “help the customer” produced for the customer:

Education spending has tripled since 1970
Education spending has tripled since 1970

They aren’t really helping the customer, are they? What they do is collect dues, enrich their union leaders, intimidate their opponents with threats and force, and then give money to secular left politicians to prevent their customers from opting out of a system that doesn’t produce higher quality and lower prices for the customer. The secular left politicians pass laws that prevent the customers (parents) from being able to get a better product (education for their children) for a lower price. We should abolish public sector unions in order to get the benefits for the customer that we see in the private sector.

Dave Rubin interviews my favorite economist: Thomas Sowell

Economist Thomas Sowell
Dr. Thomas Sowell – the best economics teacher you will ever learn from

Two half-hour interviews with my FAVORITE economist, Thomas Sowell. If you haven’t read any books by Thomas Sowell, then you don’t know how wonderful economics can be. Thomas Sowell stands for the proposition that before you adopt an economic policy, you have to consider what incentives it will create for everyone involved. And he backs up his ideas with studies that span the whole range of times and places. It turns out that many bad ideas have already been disproved in different times and places, and Thomas Sowell knows them all. Thomas Sowell is a man of facts and evidence.

Description of part one:

Dr. Thomas Sowell (Economist) joins Dave to discuss his Marxist past, free speech on campuses, distinguishing between classical liberalism and libertarianism, and his new book “Discrimination & Disparities.

Part one:

“This idiot has stumbled on something that will ruin us all”. LOL!

Description of part two:

Dr. Thomas Sowell (Economist and Author) joins Dave to discuss the role of government, the problem with minimum wage laws, his experience as a black conservative, debunking systemic racism, the importance of common decency, and his new book “Discrimination & Disparities.”

Part two:

In the comments, Dave explains that YouTube has demonetized the video. I suppose that this is because the video contains conservative ideas, and YouTube is owned by the far-left Google.

Anyway, I recommend getting your hands on some Thomas Sowell books.

This one seems to be a collection of introductory essays:

The Thomas Sowell Reader

I haven’t read it, but it has the highest reviews of any of his books. What I would recommend is picking up one of the OLDER versions of his “Basic Economics”:

Basic Economics

You can get a used one for a couple of bucks. I read the second edition a while back, and I remember that just reading the first 3 chapters knocked my socks off. Some helpful person even uploaded the audio of the edition I read to YouTube. Just listen to the first 3-4 chapters, and you’ll see what I mean. No one who wants to understand how the world really works can ignore Thomas Sowell.

One that I still haven’t read that’s short and sweet is:

The Vision of the Anointed

But a later book that is similar is actually my favorite Thomas Sowell book:

Intellectuals and Society

I also liked this one a lot:

Economic Facts and Fallacies

I once dated a homeschooled girl who came from a large, rural family. This family produced brilliant children, but the parents didn’t really believe in college. I told the girl that to marry me, she would have to get a college degree. She and her parents didn’t really like that, and we broke up. However, I did tell her that she should read Thomas Sowell, because she had some left of center views on public policy, e.g. – health care. I found out later that she went on to read SIX Thomas Sowell books in two months. After that, she went on to get a BA in economics via distance learning, with a 4.0 GPA! I think part of that transformation is due to the Thomas Sowell books. Thomas Sowell changes lives.

I have to include this clip of Thomas Sowell from a long time ago:

He understood the things we are fighting about today decades ago. This man should have been our first black president.

By the way, Dave Rubin does a lot of good interviews. This one that he did with Larry Elder was worth watching.

Under “racist” Trump, black unemployment plunges to record low

In the 2016 presidential election, about 90% of black voters voted for higher taxes, more government spending, more regulations, and more government. President Trump slashed the individual and corporate tax rates, and greatly reduced regulations on job creators. Fortunately for black voters, they didn’t get the bad economic policies they voted for.

The Daily Caller explains:

Friday’s economic numbers were very good for America.

The numbers reveal that the U.S. economy is booming and many key indicators of economic health are trending in the right direction. According to the Labor Department, the unemployment rate is 3.8 percent, the lowest in nearly two decades.

223,000 jobs were created and the May increase in payroll was bullish, surprising economists, according to NPR.  However, the most historic data points seem to be centered around black unemployment. The unemployment rate for African-Americans plunged to 5.9 percent in May. That is a record low. Interestingly, the gap between white ad black unemployment has shrunk to the smallest since these numbers have been recorded. The white unemployment (3.5%) and black unemployment (5.9%) is the smallest gap since the release of these numbers, beginning in the early 1970s.

If you looked at who black voters tend to vote for, you would think that they favored gay rights, gay marriage, abortion through all 9 months of pregnancy, the destruction of the traditional family, and eradicating Christianity from the public square. Although there are a handful of black conservatives who connect their voting with their values, most black voters don’t.

It doesn’t make any difference if blacks identify as Christians. When the chips are down, most of them vote for abortion, gay rights and gay marriage:

Which Religions Voted for Obama in 2008?
Which Religions Voted for Obama in 2008?

If you include black voters who don’t identify as Protestants, the number voting for Democrats is even higher, if you can believe that. Black “Protestants” vote for Democrats at about the same rates as atheists. As a non-white Evangelical Christian, I am apparently in the minority because I vote pro-life and pro-marriage.

Should we expect black voters to know that Democrat policies do not work? Well, we should certainly expect the ones living in the largest American cities to know.

Do blacks do well when they get what they vote for?

The big cities like Detroit, Milwaukee, Philadelphia, Baltimore, etc. that are so awful for law-abiding blacks to live in have been run by Democrats for decades.

Investors Business Daily explains:

America is awash with troubled, dysfunctional cities that have been electing Democratic mayors for decades.

  • Detroit last elected a Republican mayor in 1957. It is now the model of urban failure — it’s recognized more for its poverty, crime, rot and bankruptcy than the great cars that it turned out into the early 1970s. It is the poorest big city in the nation, with almost 40% of the population living below the poverty line. The website Law Street actually ranks Detroit ahead of Flint as the country’s most dangerous city. Either way, it’s clear that both cities have institutionalized crime problems.

Detroit is also a pit of political corruption. Just in recent years, one mayor, Kwame Kilpatrick, was convicted of corruption and sent to federal prison for 28 years, while building inspectors have been indicted on federal felony bribery charges and a former city council member was investigated in a bribery and kickback scandal.

  • Chicago’s last GOP mayor was elected in 1927. The nation’s third-largest city is home to some of the worst inner-city violence imaginable. More than 2,300 people were shot there last year, and nearly 400 lost their lives to homicides.

Its finances are just as grim. “Chicago is so broke,” IBD contributor Stephen Moore explained months ago, “that its bonds are junk status, and Mayor Rahm Emanuel had to go hat in hand last week to the state capital, Springfield, for bailout money to pay the bills.” Things have been rotten enough, Moore said, to send “a record number of people … fleeing Cook County, home to Chicago.” Only a little more than half of the city’s pension liabilities are funded.

  • St. Louis has been electing Democratic mayors since 1949. The Gateway to the West has become the gateway for crime. Law Street says that it’s the fourth most dangerous city in the country, Forbes says it’s the second. It had the sixth-highest poverty rate among big cities in 2014.
  • The last GOP mayor of Philadelphia left office in 1952. A few years ago, Moore identified it as a favorite to follow Detroit into bankruptcy.
  • Both Baltimore and Oakland had Republican mayors as late as the 1960s. In the era of Democratic rule, both are now more well known for their crime and poverty problems than for their charm and character.
  • Newark, N.J., hasn’t had a GOP mayor in more than a century. It was ranked as the fifth-worst city to live in in 2015. Detroit, of course, was first.

When Democrats are in control, cities tend to go soft on crime, reward cronies with public funds, establish hostile business environments, heavily tax the most productive citizens and set up fat pensions for their union friends. Simply put, theirs is a Blue State blueprint for disaster.

If you want to blame someone for the failure of the black community to get ahead, blame Democrats. They are the ones who are running things in the cities where we see all this rioting. Their policies are the cause of the poverty. You don’t get job creation when you punish the job creators with high taxes and onerous regulations. You don’t get fathers in the homes when you reward single motherhood by choice with welfare checks.

Dave Rubin interviews my favorite economist: Thomas Sowell

Economist Thomas Sowell
Dr. Thomas Sowell – the best economics teacher you will ever learn from

Two half-hour interviews with my FAVORITE economist, Thomas Sowell. If you haven’t read any books by Thomas Sowell, then you don’t know how wonderful economics can be. Thomas Sowell stands for the proposition that before you adopt an economic policy, you have to consider what incentives it will create for everyone involved. And he backs up his ideas with studies that span the whole range of times and places. It turns out that many bad ideas have already been disproved in different times and places, and Thomas Sowell knows them all. Thomas Sowell is a man of facts and evidence.

Description of part one:

Dr. Thomas Sowell (Economist) joins Dave to discuss his Marxist past, free speech on campuses, distinguishing between classical liberalism and libertarianism, and his new book “Discrimination & Disparities.

Part one:

“This idiot has stumbled on something that will ruin us all”. LOL!

Description of part two:

Dr. Thomas Sowell (Economist and Author) joins Dave to discuss the role of government, the problem with minimum wage laws, his experience as a black conservative, debunking systemic racism, the importance of common decency, and his new book “Discrimination & Disparities.”

Part two:

In the comments, Dave explains that YouTube has demonetized the video. I suppose that this is because the video contains conservative ideas, and YouTube is owned by the far-left Google.

Anyway, I recommend getting your hands on some Thomas Sowell books.

This one seems to be a collection of introductory essays:

The Thomas Sowell Reader

I haven’t read it, but it has the highest reviews of any of his books. What I would recommend is picking up one of the OLDER versions of his “Basic Economics”:

Basic Economics

You can get a used one for a couple of bucks. I read the second edition a while back, and I remember that just reading the first 3 chapters knocked my socks off. Some crazy person even uploaded the audio of the edition I read to YouTube. Just listen to the first 3-4 chapters, and you’ll see what I mean. No one who wants to understand how the world really works can ignore Thomas Sowell.

One that I still haven’t read that’s short and sweet is:

The Vision of the Anointed

But a later book that is similar is actually my favorite Thomas Sowell book:

Intellectuals and Society

I also liked this one a lot:

Economic Facts and Fallacies

I once dated a homeschooled girl who came from a large, rural family. This family produced brilliant children, but the parents didn’t really believe in college. I told the girl that to marry me, she would have to get a college degree. She and her parents didn’t really like that, and we broke up. However, I did tell her that she should read Thomas Sowell, because she had some left of center views on public policy, e.g. – health care. I found out later that she went on to read SIX Thomas Sowell books in two months. After that, she went on to get a BA in economics via distance learning, with a 4.0 GPA! I think part of that transformation is due to the Thomas Sowell books. Thomas Sowell changes lives.

I have to include this clip of Thomas Sowell from a long time ago:

He understood the things we are fighting about today decades ago. This man should have been our first black president.

By the way, Dave Rubin does a lot of good interviews. This one that he did with Larry Elder was worth watching.