Thanks to progressivism, we’ve lost the “War on Poverty”

**Posted by Phineas

"Defeat"

“Defeat”

The War on Poverty was launched in 1964 under Lyndon Johnson with the best of intentions: through massive spending and extensive welfare programs, the government would eradicate poverty in America and make people self-sufficient. Like I said, a worthy goal.

It has also been an utter failure. In 1964 we declared war on poverty, and poverty won.

As the chart above shows, poverty was in deep, rapid decline in America after World War II without any government help, just the natural processes of a growing, prosperous economy. It looked well on its way to elimination, perhaps. Then, in the mid to late-60s, it leveled off and, save for an occasional bump up, has stayed right around fifteen percent.What happened?

In 1964, with the start of the War on Poverty, progressives and other economically illiterate do-gooders wound up trapping people in poverty, rather than helping them out of it. As Robert Rector at The Signal writes:

Johnson did not intend to put more Americans on the dole (1). Instead, he explicitly sought to reduce the future need for welfare by making lower-income Americans productive and self-sufficient.

By this standard, the War on Poverty has been a catastrophic failure. After spending more than $20 trillion on Johnson’s war, many Americans are less capable of self-support than when the war began. This lack of progress is, in a major part, due to the welfare system itself. Welfare breaks down the habits and norms that lead to self-reliance, especially those of marriage and work. It thereby generates a pattern of increasing inter-generational dependence. The welfare state is self-perpetuating: By undermining productive social norms, welfare creates a need for even greater assistance in the future. Reforms should focus on these programs’ incentive structure to point the way toward self-sufficiency. One step is communicating that the poverty rate is better understood as self-sufficiency rate—that is, we should measure how many Americans can take care of themselves and their families.

Emphasis added.

What was it Ronald Reagan said?

“The nine most terrifying words in the English language are ‘I’m from the government and I’m here to help.'”

One would think that, faced with all the mounds of evidence that government programs don’t lift people out of poverty, Progressives, who claim to be devoted to “progress,” would see the war on poverty has been a failure and that the programs should be reformed or discontinued and something else tried, something like less government intervention.

But, no. Few ever will be that honest, because to say government failed to reorder society as desired would be to admit that the central tenet of progressivism, a faith in the power of technocrats to manage a vastly complex society, was wrong.

Meanwhile, that core 15% remains trapped in poverty, addicted to government “crack” and walking a road paved with good intentions.

PS: Note the sharp climb back up to 15% at the end of that chart. It starts soon after the Democrats take over Congress in 2006 and undo the 1990s Clinton-Gingrich welfare reform, then accelerates under Obama. Coincidence? I think not.

RELATED: Cato economist Dan Mitchell has often written on the same topic. Here’s a post he wrote on the failures of the War on Poverty and another on the “redistribution trap.” That latter is must-reading.

Footnote:
(1) Many criticize that assertion, with some justification. See for example Kevin Williamson’s “The Dependency Agenda.”

(Crossposted at Public Secrets)

(Video) 1948 cartoon: “Make Mine Freedom!”

**Posted by Phineas

Here’s a neat animated short from almost 70 years ago that does a darned good job showing the differences between a society based on individual liberty and the free market, on the one hand, and those based on statism (Socialism, Communism, and Fascism) on the other. It makes good use of humor to get its point across:

Nowadays, I think we could add another “-ISM” to that patent medicine’s list of ingredients: the religious totalitarianism of Islamism.

Via Dan Mitchell, this was part of good post on how the Left was wrong about unemployment insurance.

(Crossposted at Public Secrets)

#RaiseTheWage: Seattle businesses push back against minimum wage increase

**Posted by Phineas

Depression-era unemployment

But at least we raised the minimum wage!

Rick Moran at PJMedia has an article up about an effort on the part of Seattle business owners to get a measure on the ballot that would roll back the city’s recently passed $15 per hour minimum wage to a more “reasonable” $12.50. You can go there to get the details (there are accusations of fraud in the petitions to get the measure on the ballot), but here is a portion in which a Seattle business owner describes the very real impact raising the minimum wage has on his and other businesses:

That favorite coffee shop that you go to? That great neighborhood restaurant? That store where you buy your books, pet food, art supplies, or clothes? Each of those businesses survives on around a 5 percent net profit margin. That means that at the end of the year, after all the expenses—the payroll, the supplies, the inventory, insurance, rent, etc.—we all will end up with only about 5 percent income in our pockets if we’re doing a half-decent job. Maybe a bit more, maybe a bit less—but you get the idea. This does not leave a small local business with much room to absorb even a small increase in costs, much less the 60 percent increase demanded by the well-meaning but ill-researched and biased reporters and neighbors involved in this discussion.

Here are some more boring facts:

Payroll is approximately 30 percent of my entire costs at Liberty, the bar I own (the average in this business seems to be 30 to 35 percent). If the minimum wage goes up to $12.50 an hour (a reasonable middle ground some have proposed), that would be an increase of 34 percent, which means just to stay even I’d have to raise prices 10 percent across the board—the labor’s percentage increase in total cost to operate Liberty.

If the minimum wage goes to $15 an hour, I’d have to raise my contribution to payroll by 18 percent. So my costs would have to rise by no less than 18 percent, just for payroll—and that’s before my vendors’ increases in costs have to be considered, which I believe will be around another 5 percent, and that’s before Liberty adds any profit.

So it’s not impossible to imagine that costs for business like mine in Seattle will go up by no less than 20 percent.

Those increases are way more than my income. Again, my profit is around 5 percent. And it’s not just me, that’s across the board—for restaurants, for bars, for clothing stores, for pet stores, for art supply stores—many of whom have set costs and are competing with online retail. This makes it very difficult for them to adjust their purchasing.

So, what are this business owner’s options? That’s his problem, not the Seattle city council’s.

Thomas Sowell has often observed that politicians almost never feel the economic consequences of the decisions they force on the rest of us. While they’re buying their way to reelection by handing out goodies and making themselves feel good by supposedly “fighting for the people,” someone else has to pay the cost — in this case, the businessman who takes less profit, the worker who gets fewer hours, or the consumer who pays higher prices.

I left a comment to Moran’s post and I want to share part of it here. It’s anecdotal, but I think it illustrates the very real effects of politicians thinking they can ignore the laws of economics:

A friend supervises minimum wage, hourly employees in an educational setting. Our minimum wage [in California] has just gone up to $9 per hour. She has told me that she knows for a fact her budget for hiring will not increase, so she has to cut employee hours and, perhaps, eliminate a couple of jobs. Now, someone explain to me again how this increase actually helped these workers? But it sure made the pols in Sacramento feel good about themselves.

Those employees are student workers, often from minority groups, who work to help pay their way through school. And they are very real victims of progressives’ “good intentions.”

(Crossposted at Public Secrets)

It begins: SeaTac businesses add “living wage surcharge” to cover minimum wage

**Posted by Phineas

When discussing Seattle’s new, progressive –FAIR!!– $15 per hour minimum wage, I wrote that business owners had just a few choices in response:

Critics, on the other hand (and including your humble correspondent), argue that the laws of economics cannot be repealed by legislative fiat: raise the cost of labor, and businesses will be faced with a choice from among four options — pass the costs on to the consumer; reduce labor costs by cutting hours or whole jobs; eat the costs and accept lower profits; or cease doing business in that jurisdiction, either by moving or closing shop. 

Having seen some businesses hold off on hiring, while others moved out of Seattle, we now have an example of another option: pass the cost along to the consumer:

— Mark J. Perry (@Mark_J_Perry) June 5, 2014

 

And just look at that sales tax, too: 10.9%. Add the “living wage charge” and…

Yep. This is going to be a very interesting experiment.

via Twitchy

UPDATE: Just had it pointed out to me that SeaTac is not Seattle. My mistake; I’m not that familiar with Washington. Still, it can’t be all that long before Seattle itself sees these “living wage surcharges.” Also fixed the headline.

via:

— Craig S. Bell (@craig_s_bell) June 6, 2014

(Crossposted at Public Secrets)
 

California Senate passes $13 minimum wage, jobs flee in terror

**Posted by Phineas

Depression-era unemployment

“But at least they raised the minimum wage!”

Perhaps they didn’t want to be left behind by their progressive friends in Seattle, but the California State Senate last Wednesday passed a bill that would raise the minimum wage to $13 per hour by 2017. From the legislative analyst’s summary:

SB 935, as amended, Leno. Minimum wage: annual adjustment.

Existing law requires that, on and after July 1, 2014, the minimum wage for all industries be not less than $9 per hour. Existing law further increases the minimum wage, on and after January 1, 2016, to not less than $10 per hour.

This bill would increase the minimum wage, on and after January 1, 2015, to not less than $11 per hour, on and after January 1, 2016, to not less than $12 per hour, and on and after January 1, 2017, to not less than $13 per hour. The bill would require the automatic adjustment of the minimum wage annually thereafter, to maintain employee purchasing power diminished by the rate of inflation during the previous year. The adjustment would be calculated using the California Consumer Price Index, as specified. The bill would prohibit the Industrial Welfare Commission (IWC) from reducing the minimum wage and from adjusting the minimum wage if the average percentage of inflation for the previous year was negative. The bill would require the IWC to publicize the automatically adjusted minimum wage.

The bill would provide that its provisions not be construed to preclude the IWC from increasing the minimum wage to an amount greater than the calculation would provide or to preclude or supersede an increase of the minimum wage that is greater than the state minimum wage by any local government or tribal government.
The bill would apply to all industries, including public and private employment.

(h/t California Political Review)

“Leno” is Senator Mark Leno, whose district includes, naturally, San Francisco. You can kind of guess his politics. (He also backed a bill allowing children to have more than two parents. Yes, you read that right.) He’s also a prime example of Thomas Sowell’s observation about politicians who don’t have to suffer the consequences of decisions they impose on others. In this case, causing the cost of labor to skyrocket forces business owners to decide whether to pass on the cost to consumers, cut workers’ hours or whole jobs, or go out of business. As the head of CKE Restaurants told CNBC, people are doing all three:

CKE Restaurants’ roots began in California roughly seven decades ago, but you won’t see the parent company of Carl’s Jr. and Hardee’s expanding there much anymore.

What’s causing what company CEO Andy Puzder describes as “very little growth” in the state?

In part it’s because “the minimum wage is so high so it’s harder to come up with profitable business models,” Puzder said in an interview. The state’s minimum wage is set to rise to $9 in July, making it among the nation’s highest, and $10 by January 2016.

In cities in other states where the minimum wage has gone up considerably, Puzder said “franchisees are closing locations” after riding out lease expirations.

If the federal minimum hourly pay shoots up to $10.10 from the current $7.25—as many lawmakers and President Barack Obama are advocating—Puzder predicts fewer entry-level jobs will be created. If this happens, CKE would also create fewer positions, he forecast.

A recent nonpartisan Congressional Budget Office study also predicted mass job losses, estimating that a hike to $10.10 could result in a loss of about half a million jobs by late 2016, even as it lifted many above the poverty line.

(h/t California Political Review)

For some reason, I don’t think those who lose their jobs because of the wage increase will see themselves as “lifted out of poverty.”

Minimum-wage jobs are not meant to be lifelong careers. For people just entering the labor market, they’re ways to acquire skills needed to move on to better-paying jobs. For others, they’re a means to bring in additional, supplementary income into the household. The pro-increase arguments distort facts and wrap them in myth, all to disguise what is really a wealth redistribution program.

CKE’s Puzder goes on to relate how, when minimum wage increases are combined with the added expenses imposed by Obamacare, franchisees have chosen not to open new restaurants or have even closed locations, meaning these are jobs lost. But they do it because they can get a better return on their investment money elsewhere, such as by putting it in bonds.

It’s called economic common sense, something Senator Leno and his colleagues are woefully lacking in.

PS: SB 935 has now gone to the Assembly, and I will be shocked if it doesn’t pass. It’s frightening to think we have to rely on Governor Brown to be the sane one in the room and veto this bill when it shows up on his desk.

(Crossposted at Public Secrets)

Seattle: $15 minimum wage already costing jobs

**Posted by Phineas

Depression-era unemployment

“But at least we raised the minimum wage!”

And it’s not even in effect, yet.

But, it’s not surprising. Business managers have to plan for the future, and a looming huge increase in their labor cost will force many to rethink how they do business in Seattle, if they continue to do business there at all. Writing for the free-market Washington Policy Center, Erin Shannon reports on how small businesses are planning to cut back on hiring, delaying expansion, or moving out of the city to deal with the new wage law. Most striking, though, is the account of one business owner who supported the law, but now thinks she may have made a mistake:

One of those business owners is a well-known and active supporter of “progressive” labor policies, including a higher minimum wage. Jody Hall, owner of Cupcake Royale, initially supported a $15 minimum wage. But now Hall admits the proposed policy is, “keeping me up at night like nothing ever has.”

While Hall has serious concerns with Mayor Ed Murray’s plan to phase in a $15 minimum wage over seven years with a temporary tip credit, her biggest fear is if voters approve the radical charter amendment sponsored by the group 15Now. The charter amendment would force all large employers to begin paying $15 in 2015, and would give small business owners just three years to acclimate to the high wage. And the 15Now proposal would not allow for any tip credit.

If the charter amendment passes, Hall says she would be forced to close half of her seven locations and lay off 50 of her 100 workers.

But beyond the differences between Mayor Murray’s proposal or the more aggressive 15Now proposal, Hall says she now has “serious second thoughts” about a $15 minimum wage in general, especially since Seattle would be “going it alone” with a wage that is significantly higher than any other minimum wage in the nation.

Hall’s second thoughts about a $15 minimum wage have led to second thoughts about expanding her business. She was set to open a new business in Seattle this year, but has tabled the plan until after voters have their say on the charter amendment in the November election. Hall says if she considers any new locations before then, they will be outside the city limits.

In other words, when progressivism meets economic reality, guess which wins? You would think a successful businesswoman like Hall would have seen this coming. Maybe she thought she’d get a waiver from Obama.

And pay special attention to her comment about “going it alone.” As minimum wage increases are applied and then have the same effect in various places, there will be more and more calls from the fairness crowd to apply these laws statewide and even nationwide, to make sure business owners can’t just move to a friendlier jurisdiction, which would be “unfair.” The minimum wage thus becomes a wedge issue in an attack on local control, federalism, and jurisdictional competition, things progressive just hate, because their favored policies usually fail.

Meanwhile, I want to thank Seattle for volunteering to be a case study on the foolishness of government control of wages.

via Adrian Moore

(Crossposted at Public Secrets)

The racist origins of the minimum wage

**Posted by Phineas

Chattanooga VW workers, per MSNBC

Also supported a minimum wage

I came across an interesting blog post from a few weeks ago while trolling the news this morning for something interesting. Now, we all know about the racist history of the Democratic Party: the defense of slavery, even inciting a civil war to preserve it; the creation of terrorist organizations, such as the KKK, in order to keep Blacks from exercising their rights as free citizens; and the creation of Jim Crow, which created a legal framework for Blacks’ oppression that lasted into the 1960s.

But did you know the minimum wage, the distraction du jour for Democrats anxious to talk about anything other than Obamacare’s failures, itself had its roots in minority oppression? Here’s an excerpt from a short piece in Forbes by Carrie Sheffield:

The business-friendly National Center for Policy Analysis points out “the 1931 Davis-Bacon Act, requiring ‘prevailing’ wages on federally assisted construction projects, was supported by the idea that it would keep contractors from using ‘cheap colored labor’ to underbid contractors using white labor.”

African-American economist Thomas Sowell with Stanford University‘s Hoover Institution gives an uncomfortable historical primer behind minimum wage laws:

“In 1925, a minimum-wage law was passed in the Canadian province of British Columbia, with the intent and effect of pricing Japanese immigrants out of jobs in the lumbering industry.

A Harvard professor of that era referred approvingly to Australia’s minimum wage law as a means to “protect the white Australian’s standard of living from the invidious competition of the colored races, particularly of the Chinese” who were willing to work for less.

In South Africa during the era of apartheid, white labor unions urged that a minimum-wage law be applied to all races, to keep black workers from taking jobs away from white unionized workers by working for less than the union pay scale.”

It is a plain-as-day fact that raising the cost of labor will force a business to do one of four things:

  • Go out of business
  • Accept lower profits
  • Raise prices for the consumer
  • Or cut employee hours or reduce the number of jobs to compensate for higher costs.

The first two are very unlikely to happen, which leaves passing on the cost to the consumer or cutting back on labor. And if the owners decide to cut back on labor, guess whose hours get the ax first? That’s right, it’s most likely the lower or unskilled employee, because it makes less sense to pay them the higher wage when you have more skilled employees who give more value in return for their wages. Now, just who makes up a large percentage of that at-risk labor force? That’s right: young Blacks.

The next time you encounter some Lefty blathering about raising the minimum wage, ask them why they have it in for young people and Blacks.

(Crossposted at Public Secrets)

Obama minimum wage edict leads to job losses at military bases

**Posted by Phineas

Depression-era unemployment

“But at least we won the election! Obama!!”

Democrats and their Leftist allies are desperate to find any issue to run on in the coming elections, other than Obamacare. One of their tactics has been to try to gin up class warfare based on raising the minimum wage. They argue that it will help the poor, raise living standards, and, of course, be more “fair.” Republicans, conservatives, and libertarians, on the other hand, contend that increasing the cost of labor will only mean higher prices to the consumer, fewer jobs for the marginally skilled, and be particularly harmful to minorities. This video is a good example of how minimum wage laws kill jobs.

Needless to say, I come down on the side of those opposed to the Democrats’ demands for a minimum wage increase. But honest, intelligent people (1) can reasonably disagree.  To help solve this disagreement, a real-world, real-time example would be nice. Fortunately (or unfortunately, as the case may be), we have one. As Byron York reports in The Washington Examiner, President Obama’s edict raising the minimum wage for federal contract employees on military bases is leading to the closure of fast-food restaurants on those bases, thus costing jobs:

Obama’s order does not take effect until January 1, 2015. But there are signs it is already having an effect — and it is not what the president and his party said it would be.

In late March, the publication Military Times reported that three McDonald’s fast-food restaurants, plus one other lesser-known food outlet, will soon close at Navy bases, while other national-name chains have “asked to be released from their Army and Air Force Exchange Service contracts to operate fast-food restaurants at two other installations.”

Military Times quoted sources saying the closures are related to the coming mandatory wage increases, with one source saying they are “the tip of the iceberg.”

And increasing the minimum wage isn’t the only way Washington is increasing the cost of labor:

The administration is making it very expensive to do business on military bases, and not just because of the minimum wage. Under federal contracting law, some businesses operating on military installations must also pay their workers something called a health and welfare payment, which last year was $2.56 an hour but which the administration has now raised to $3.81 an hour.

In the past, fast-food employers did not have to pay the health and welfare payment, but last fall the Obama Labor Department ruled that they must. So add $3.81 per hour, per employee to the employers’ cost. And then add Obama’s $2.85 an hour increase in the minimum wage. Together, employers are looking at paying $6.66 (2) more per hour, per employee. That’s a back-breaking burden. (Just for good measure, the administration also demanded such employers provide paid holidays and vacation time.)

As I wrote above, the natural business response to this is to either raise prices for the consumer, or cut back on employee hours — or cut jobs altogether. Well, guess what? York reports that military contracts do not allow the businesses to raise their prices above what’s common in the outside community. So, even though Obama is raising wages well above the prevailing standard, employers are forbidden to recoup their costs. What does that leave?

Closing the business altogether.

If there’s no chance for profit, why stay open? When you add up the numbers for all four major services, we’re looking at potentially 10,000 jobs going up in smoke. Not to mention the ripple effect in the outside communities.

Here we have a current, ongoing example of how raising the minimum wage harms people by killing jobs. (3) How then, is the Democratic proposal a good idea?

I’m waiting. smiley well I'm waiting

 

Footnote:
(1) Thus excluding Democratic pols and activists.
(2) How fitting.
(3) Yes, military contract law made the situation worse by forbidding compensatory price increases. So, increasing costs for the consumer –including minimum wage earners!– is a good thing? And what’s to say the Obama administration, if they got their way on the minimum wage, wouldn’t try to extend price controls when the inevitable complaints arose? We are talking dyed-in-the-wool statists, after all. One bad policy, raising the minimum wage, inevitably leads to more bad policy. Just look at the history to-date of Obamacare.

(Crossposted at Public Secrets)

#Obamacare: more proof that liberals don’t “get” economics

**Posted by Phineas

Obama loan officer at work

Obamacare insurance commissioner

Sometimes I think one of the greatest acts of charity I could perform would be to buy progressives each a copy of Thomas Sowell’s “Basic Economics: A Common Sense Guide to the Economy,” because they clearly were not paying attention in high school or college:

The practice of offering relatively inexpensive health plans with bare-bones provider networks has created tension between making health care affordable and keeping it accessible. It’s set to come to a head this week in Olympia.

The growth of “narrow networks” in Washington comes as the Affordable Care Act limits the ability of insurance companies to control their costs. That’s made it harder to offer plans at a range of prices — something the companies want to do as they compete for comparison shoppers on the health exchanges.

Many companies figured out they could sell cheaper plans that offer consumers fewer choices of where to get care. That caught some consumers, and Washington’s insurance commissioner, by surprise.

Commissioner Mike Kreidler says companies need to justify those narrow networks.

Mr. Kreidler wants insurance companies to prove they need to narrow their networks; after all, under Obamacare, they’re not really allowed to run their own businesses anymore. So he’s proposing new rules, regulations, and reporting requirements that have even the people running Washington’s exchange screaming that this will increase costs to the consumer and hinder companies from providing effective service. Kreidler, however, like many other fans of bureaucracy, just doesn’t get it:

Kreidler says he doesn’t believe prices will increase. He sees himself as walking a fine line, but with his compass oriented decidedly toward the consumer.

“Oriented” like a missile aimed straight at their wallets, he means.

Moe Lane provides a succinct explanation of why, to put it kindly, Mr. Kreidler’s belief is… “ignorant:”

There are three major elements to healthcare plan decisions:

  • Cost: How much does it cost per month or year, just to have it?
  • Deductible: How much does the consumer have to kick in for any given procedure?
  • Network: Who is willing to take you on as a patient, if you use that plan?

With me so far?  Good.  What Obamacare does is turn all of this into a zero-sum game: it mandates an across-the-board, let’s-slap-something-together, we-don’t-care-about-your-stinking-special-circumstances product and doesn’t really care how insurers and consumers cope with the situation.  So the insurers are left with a quandary: if they want to keep the networks intact, thanks to the various mandated procedures and general bureaucratic detritus either the total cost will go up, individual plan deductibles will, or both. And the same is true for the other two categories: push one down and the other two rise. All the good intentions in the world will not alter this calculation.

To use another example, the three legs of Obamacare mentioned above are like a balloon: squeeze one portion, and another must expand. It’s a law of physics, just as the cost to do business and the consequent price of insurance policies are subject to immutable laws of economics.

But technocrats like Mike Kreidler think they can control complex economies with a flourish of their pen, without there being any consequences for others. Perhaps along with a good book on economics, he should learn a lesson in humility and study the parable of King Canute.

Meanwhile, Washington voters should think of Mr. Kreidler and his “compass” as their premiums go up. They elected him with 58% of the vote in 2012; 2016 would be a good time to undo that mistake.

(Crossposted at Public Secrets)

Ted Cruz explains #Obamacare’s success in one graphic

**Posted by Phineas

"Your MEA shop steward"

“Obamacare salesman on the job”

With the recent announcement of more than seven million sign-ups for Obamacare, the administration and its supporters have been running around shouting “Success! SUCCESS!!”, as if an enrollment figure means that the implementation of the law itself, with its myriad problems (for example) (1), will be just a matter of working “the bugs” out.

Nevertheless, seven million was the administration’s goal, and they met it. So, how does one explain this victory? How did they do it?

Senator Ted Cruz is ready with the answer:

obamacare broken window bastiat ted cruz

(Full-size version)

Apparently the good Senator is a student of Frederic Bastiat’s “Parable of the broken window.” Would that the rest of Congress were.

Footnote:
(1) For lots more, check out my Obamacare archives.

via Dan Mitchell

(Crossposted at Public Secrets)