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Archive for the ‘Minimum Wage’ Category

I’m beginning to think that people from some nations are smarter and more rational than others.

That may explain, for instance, why voters in Estonia support fiscal restraint while voters in France foolishly think the gravy train can continue forever.

But I’m not making an argument about genetic ability. Instead, what I’m actually starting to wonder is whether some political cultures yield smarter and more rational decisions.

Switzerland is a good example. In a referendum this past weekend, an overwhelming majority of voters rejected a proposal to impose a minimum wage. Here are some excerpts from a BBC report.

Swiss voters have overwhelmingly rejected a proposal to introduce what would have been the highest minimum wage in the world in a referendum. Under the plan, employers would have had to pay workers a minimum 22 Swiss francs (about $25; £15; 18 euros) an hour. …critics argued that it would raise production costs and increase unemployment. The minimum wage proposal was rejected by 76% of voters. Supporters had argued it would “protect equitable pay” but the Swiss Business Federation said it would harm low-paid workers in particular. …unions are angry that Switzerland – one of the richest countries in the world – does not have a minimum pay level while neighbouring France and Germany do.

Every single Swiss Canton voted against the minimum wage.

That means the French-speaking cantons voted no, even though the French-speaking people in France routinely support politicians who favor bad policy.

That means the German-speaking cantons voted no, even though the German-speaking people in Germany routinely support politicians who favor bad policy.

And it means that the Italian-speaking canton voted no, even though the Italian-speaking people in Italy routinely support politicians who favor bad policy.

So why is it that the same people, genetically speaking, make smart decisions in Switzerland and dumb decisions elsewhere?

I don’t have an answer, but here’s some more evidence. As you can see from these passages in a New York Times story, the Swiss have a lot more common sense than their neighbors.

“A fixed salary has never been a good way to fight the problem,” said Johann Schneider-Ammann, the economic minister. “If the initiative had been accepted, it would have led to workplace losses, especially in rural areas where less-qualified people have a harder time finding jobs. The best remedy against poverty is work.” …“Switzerland, especially in popular votes, has never had a tradition of approving state intervention in the labor markets,” said Daniel Kubler, a professor of political science at the University of Zurich. “A majority of Swiss has always thought, and still seems to think, that liberal economic principles are the basis of their model of success.”

Even the non-Swiss in Switzerland are rational. Check out this blurb from a story which appeared before the vote in USA Today.

…some who would be eligible for the higher wage worry that it may do more harm than good. Luisa Almeida is an immigrant from Portugal who works in Switzerland as a housekeeper and nanny. Almeida’s earnings of $3,250 a month are below the proposed minimum wage but still much more than she’d make in Portugal. Since she is not a Swiss citizen, she cannot vote but if she could, “I would vote ‘no’,” she says. “If my employer had to pay me more money, he wouldn’t be able to keep me on and I’d lose the job.”

Heck, I’m wondering if Ms. Almeida would be willing to come to Washington and educate Barack Obama. Minimum Wage BensonShe obviously has enough smarts to figure out the indirect negative impact of government intervention, so her counsel would be very valuable in DC.

But if Ms. Almeida isn’t available, we have another foreigner who already has provided advice on the issue of minimum wages. Here’s Orphe Divougny, originally from Gabon, with a common-sense explanation of why it doesn’t make sense to hurt low-skilled workers.

By the way, this isn’t the first time the Swiss have demonstrated common sense when asked to vote of key economic policy issues.

In 2001, 85 percent of voters approved a plan to cap the growth of government spending.

In 2010, 59 percent of voters rejected an Obama-style class-warfare tax plan.

No wonder there are many reasons why Switzerland ranks above the United States.

P.S. I wrote earlier this month about Pfizer’s potential merger that would allow the company to reduce its onerous tax burden to the IRS by redomiciling in the United Kingdom.

Well, Jeff Jacoby of the Boston Globe has weighed in on the issue and I can’t resist sharing this excerpt.

…the outrage isn’t the wish of an American corporation to lower its tax bill. It is a US tax code so punitive and counterproductive that it can drive a company like Pfizer, which was launched in Brooklyn in 1849, to turn itself into a foreign corporation. The United States has the highest corporate tax rate in the developed world. That puts American companies at a serious competitive disadvantage, since their rivals elsewhere are able to channel more of their profits into new investment, hiring, and productivity. What’s worse, ours is the only country that enforces a system of “worldwide” taxation, which means that American firms have to pay tax to the IRS not only on income earned in the United States but on their foreign earnings as well. Other nations content themselves with “territorial” taxation — they only tax income earned within their national borders. US corporations like Pfizer that have significant earnings overseas are thus taxed on those earnings twice: first by the government of the country where the money was earned, and then by the IRS.

Amen, amen, and amen.

Our tax system imposes a very punitive corporate tax rate.

It then augments the damage with worldwide taxation.

And the system is riddled with onerous rules that cause America to rank a lowly 94th out of 100 nations for business “tax attractiveness.”

In other words, when greedy politicians complain about Pfizer’s possible inversion, it’s a classic case of blaming the victim.

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Like John Stossel and Thomas Sowell, I’m not a big fan of the Federal Reserve.

It’s not just that I’m a libertarian who fantasizes about the denationalization of money.

I also think the Fed hasn’t done a good job, even by its own metrics. There’s very little doubt, for instance, that easy-money policies last decade played a major role in creating the housing bubble and causing the financial crisis.

Yes, Fannie Mae and Freddie Mac played a big role, but it was the Fed that provided the excess liquidity that the GSEs used to subsidize the subprime lending orgy.

But I’m not writing today about possible alternatives to the Fed or big-picture issues dealing with monetary policy.

Instead, I want to highlight three rather positive signs about the Janet Yellen, the new Chair of the Fed’s Board of Governors.

1. Unlike a normal political animal and typical bureaucratic empire builder, she didn’t assert powers that she doesn’t have. She was asked at a congressional hearing about bitcoin and she forthrightly stated that the Federal Reserve has no legislative authority to mess with the online currency.

The Federal Reserve has no authority to supervise or regulate Bitcoin, chair Janet Yellen told Congress on Thursday. …On Wednesday, Manchin wrote to the Fed, Treasury and other regulators warning that the currency was “disruptive to our economy” and calling for its regulation. “Bitcoin is a payment innovation that’s taking place outside the banking industry. To the best of my knowledge there’s no intersection at all, in any way, between Bitcoin and banks that the Federal Reserve has the ability to supervise and regulate. So the Fed doesn’t have authority to supervise or regulate Bitcoin in anyway,” said Yellen.

This is very refreshing. A government official who is willing to be bound by the rule of law.

President Obama, by contrast, is now infamous for his radical and unilateral rewrites of his failed healthcare law.

Eighteen of them for those keeping count at home.

But it’s not just Obamacare.

Because of my interest in tax competition, fiscal sovereignty, and financial privacy, I’m upset that his Treasury Department pushed through a regulation that overturns – rather than enforces – laws about protecting American banks from tax inquiries by foreign governments.

But let’s not wander into other issues. Today’s post is about positive signs from Janet Yellen.

2. And here’s another one.

Political Cartoons by Gary VarvelThe Fed Chair poured cold water on the left’s fantasy view that higher minimum wage mandates don’t kill jobs.

The new Federal Reserve chairman, Janet Yellen, seemed to offer some support for the CBO’s recent conclusion that increasing the minimum wage to $10.10 an hour, as President Obama and Senate Democrats propose, would cost a significant number of jobs. The CBO projected that the proposal would mean 500,000 fewer jobs by the end of 2016, a conclusion the White House took issue with. Yellen said the CBO “is as qualified as anyone to evaluate the literature” about the employment effects of the minimum wage (some of which argues there would be little to no jobs losses, and some of which suggests there would be significant job losses), and that she “wouldn’t want to argue with their assessment.”

In the cautious-speak world of Fed officials, this is a very strong statement.

Congratulations to Yellen for putting intellectual honesty above partisan loyalty.

3. Most important of all, Yellen also affirmed that she plans on continuing the “taper,” which is the buzzword for winding down the Fed’s easy-money policy.

…she reiterated that it would take a “significant change” to the economy’s prospects for the Fed to put plans to wind down its bond-buying program on hold. …After more than five years of ultra easy monetary policy in the wake of the 2007-2009 recession, the Fed is taking the first small steps towards a more normal footing. It trimmed its bond buying by $10 billion in each of the past two months, and it expects to raise interest rates some time next year as long as the economy continues to improve. Yellen reiterated her concerns about possible asset price bubbles, and suggested the Fed would move to a more qualitative description of when it plans to finally raise rates. …Yellen acknowledged that such low borrowing costs “can give rise to behavior that poses threats to financial stability.”

And she even acknowledged that easy money can cause bubbles.

A refreshing change from some previous Fed Governors.

Now let’s give a caveat. None of this suggests Yellen is a closet libertarian.

She is perceived as being on the left of the spectrum, and it’s worth noting that many hardcore statists in the Democratic Party urged her selection over Larry Summers because he was (incorrectly) seen as somehow being too moderate.

Moreover, I suspect she will say many things in the coming years that will add to my collection of gray hair.

All that being said, I’m glad Obama picked her over Summers. By all accounts, Yellen is honest and will focus her attention on monetary policy.

Summers, by contrast, is a far more political animal and would have used the position of Fed Chair to aggressively push for more statism in areas outside of monetary policy.

P.S. Private financial institutions also played a role in the housing bubble and financial crisis, which is why those entities should have been allowed to go bankrupt instead of benefiting from the corrupt TARP bailout.

P.P.S. Since this post mentions bitcoin and since I sometimes get asked about the online currency, I’ll take this opportunity to say that I hope that it is ultimately successful so that we have alternatives to government monetary monopolies. That being said, I wouldn’t put my (rather inadequate) life savings in bitcoin.

P.P.P.S. If you want an amusing video mocking the Fed, here’s the famous “Ben Bernank” video. And if you want a serious takedown of the Fed, here’s George Selgin’s scholarly but accessible analysis.

P.P.P.P.S. On a completely unrelated topic, if you’re a fan of “House of Cards,” I invite you to pay close attention at about the 30:00 mark of Episode 5, Season 2. If you don’t blink, you may notice an unexpected cameo appearance. Maybe this person has a future acting career if he ever succeeds in restoring limited government and needs to find something new to occupy his time. After all, if President Obama has a future on the silver screen, why not others?

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If I banged my head against the wall every time politicians advocated bad policy in Washington – which is a tempting impulse, I would have been institutionalized because of brain damage a long time ago.

But it’s difficult to maintain my self control when I think about minimum wage laws.

All sentient human beings should know higher minimum wage laws will mean more unemployment. Just ask them, for instance, what would happen if the minimum wage was raised to $100 per hour. Once they admit that would lead to massive job losses, they’ve accepted the principle and it’s simply an empirical issue of figuring out how many jobs are lost when the minimum wage is $75, $50, $20, $10, $6, etc.

At the risk of stating the obvious, businesses seek to make money and they won’t hire somebody who can only produce $6 of value per hour if the government says that person has to be paid $7.25.

But there are those who nonetheless push for higher minimum wage requirements. I’ve previously provided six potential reasons why a person would support such a policy, three of which are because of cynicism and three of which are because of naiveté.

I strongly suspect Obama and his team are pushing for a higher minimum wage for the first reason, but it’s hard to even care. All that really matters is that people will suffer if the President succeeds.

And I’m not making a partisan point. Mitt Romney and George W. Bush had the same mentality.

Now, perhaps, you understand why this issue is so frustrating.

So let’s try to maintain our sanity by mocking these feckless and uncaring politicians.

Here are a couple of good cartoons on the topic, beginning with a clever contribution from Lisa Benson.

Political Cartoons by Lisa Benson

This Steve Breen cartoon makes the same point, showing how the poor are disadvantaged.

Political Cartoons by Steve Breen

I also would recommend this video if you want to learn more about the minimum wage, and if you want to understand why this issue gets me very frustrated, check out this interview.

It’s especially perverse that politicians are pushing these policies when, as Walter Williams has explained, blacks and other minorities are among the biggest victims.

Last but not least, I’m a libertarian, which means that I’m motivated by morality as well as economic efficiency.

So I get equally upset that politicians think they should have the right to block a labor contract between consenting adults.

What gives them the right to tell other people that they can’t engage in non-coercive, non-violent exchange?

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I’m not a big fan of the German government. Angela Merkel has a disturbing desire to impose fiscal and political union on the European continent. And even the supposedly free market Free Democratic Party seems perfectly comfortable with a gradual descent into statism.

No wonder I mocked the Washington Post for labeling Germany a “fiscally conservative” nation.

But everything’s relative in the world of public policy. Compared to some basket cases in Europe, Germany is a laissez-faire paradise.

Here’s a fascinating report from an English-language news site in Europe.

Two Belgian government ministers have complained…that..Belgian companies are facing unfair competition. The two Belgian cabinet ministers were in Hannover (Germany) on Monday. They decided on their visit after often hearing in Belgium that it was cheaper to get Belgian cattle processed in Germany than at home.

So what is the unfair competition from Germany? Are there special tariffs or trade barriers that are artificially raising costs on Belgian products?

Nope, the Belgians are complaining that Germany doesn’t have a minimum wage and that regulations are not sufficiently onerous. Oh, the horror.

The Belgian ministers say that the most striking thing is that this can happen legally because there is no general minimum wage in Germany: “The company is not violating any regulations, because there are no regulations and that must stop” Mr Vande Lanotte told the VRT. The Belgians insist Belgian companies are the subject of unfair competition. Economy Minister Vande Lanotte says that in principle everybody should be treated in the same way: “Belgian companies cannot compete with their German competitors and this has ramifications.”

Gasp, there “are no regulations.” What sort of vicious dog-eat-dog system are the Germans running?!?

The answer, of course, is that Germany has lots of red tape.

More statist than France?!?

But apparently not as much intervention as Belgium. And you’ll notice that the “principle” that “everybody should be treated the same way” is really a stalking horse for the argument that there should be regulatory harmonization.

But the harmonization always means that everyone has to impose more onerous rules. Belgium doesn’t harmonize with Germany’s comparatively market-oriented policy. Instead, Germany is supposed to harmonize with the more statist and interventionist model of the Belgians.

In this sense, regulatory harmonization is like tax harmonization. It always means a heavier burden of government, not a lighter burden. Low-tax jurisdictions are badgered and harassed to make their tax systems worse so that fiscal hell-holes such as France don’t face “unfair competition.”

In an ideal world, the Germans would tell the Belgians to go jump in a lake.

But thanks to the never-ending pressure for regulation, harmonization, and centralization in Europe, it’s not that simple. The Brussels bureaucrats may decide to force Germany to adopt bad policy.

Mr Vande Lanotte intends to raise the issue of the absence of a minimum wage in many German sectors with the European Commission.

P.S. Germany also is better than the United States, at least on the issue of minimum wage mandates. Germany doesn’t have a minimum wage law. Obama, meanwhile, wants to saw off the bottom rungs of the economic ladder by pushing the U.S. minimum wage requirement even higher.

P.P.S. This story helps to explain why I want Belgium to split apart. If it became two nations, one Dutch and one French, I suspect we’d get better policy because they would then compete with each other instead of nagging Germany to become more statist.

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Should the federal government make life more difficult for low-skilled workers?

I hope everyone will emphatically say “NO!”

Heck, most people understandably will think you’re crazy for even asking such a preposterous question.

Minimum Wage Cartoon 2But some of those people will also think that it’s a good idea for politicians in Washington to make low-skilled workers less attractive to employers by raising the minimum wage.

I often ask such people whether they are more likely to buy a Big Mac if McDonald’s raises the price by 24 percent. They say they are less likely.

I then ask them if they are more likely to buy a car if GM increases the price of a Buick by 24 percent. They say less likely, of course.

But they seem to have a blind spot when I ask them whether employers will be more likely or less likely to hire low-skilled workers when the government increases the cost of those workers by 24 percent.

I explain further in this interview for Yahoo! Finance.

The interviewer, by the way, seems to be economically illiterate.

He apparently believes that we can reduce inequality by pricing poor people out of the job market. He also blames companies for sitting on piles of cash, presumably unaware that firms only will invest if there are profitable opportunities.

Minimum Wage CartoonAt one point, I delicately state that one of his questions “betrays a certain lack of historical knowledge,” which is a polite way of saying “you’re either lying or you have no idea what you’re talking about.”

Ultimately, I try to help him understand by comparing fast-growing economies such Hong Kong and Singapore, which have relatively low burdens of government, with slow-growth economies such as France and Italy, where politicians ostensibly seek to “help” people with various forms of intervention.

I’m not sure I made any progress, so feel free to suggest other ways of convincing skeptics that freedom is better than statism.

Anyway, for those who want more information, this video explains the underlying economics of the minimum wage. We also have plenty of evidence (see here and here) that unemployment rose following the most recent hike in the minimum wage.

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The unemployment rate has been stuck above 8 percent ever since Obama pushed through his ill-fated stimulus scheme to increase the burden of government spending.

This high level of joblessness presumably reduces Obama’s chances of getting reelected, so you would think that Democrats would be very leery of proposals that increase the cost of job creation.

Yet they’ve relentlessly pushed to subsidize unemployment, even though Paul Krugman and Larry Summers have acknowledged that unemployment insurance reduces the incentive to find a job.

Now there’s talk of pushing for a higher minimum wage. Here are some details from a report in The Hill.

Advocates pushing for a minimum wage increase are looking to turn it into an election-year issue as the campaign season heats up this fall. Such a hike is expected to be included in the Democrats’ 2012 platform — which will be presented to delegates at the party’s convention in Charlotte, N.C., next week — a member of the drafting committee told The Hill. …In the eyes of labor unions, consumer advocates and liberal Democrats, the strategy is a no-brainer in an election season that’s featured the birth of the Occupy Wall St. movement, questions about Mitt Romney’s financial practices and a highly partisan debate over which class of workers deserve an extended tax break next year. …A minimum wage hike is not without political risks, however, as Republicans and business groups are warning that such a move would burden small businesses amid an employment crisis when Congress is urging them to hire.

Regarding the last sentence in the excerpt, I agree that a minimum wage hike entails risk, but I fear those risks are to the economy rather than to politicians. Much to my dismay, a majority of voters generally support this misguided policy.

In my attempts to educate these misguided souls, I try to figure out why they favor certain policies. In the case of the minimum wage, this is my rough-draft list of why some people support this perverse form of government intervention.

1. They understand low-income people will suffer if the minimum wage is increased, but that is acceptable collateral damage in the quest for political power.

2. They understand low-income people will suffer in the short run, but they rationalize this harm because there will be more redistribution in the long run if they obtain political power.

3. They understand low-income people will suffer, but that is an acceptable price to pay since it means unions will have more negotiating leverage once low-income workers are priced out of the market.

4. They think low-income people will benefit because the economy is a fixed pie and a mandate to pay more to low-income workers will merely result in less income for the rich.

5. They think low-income people will benefit because of the magic of Keynesian economics – i.e., beneficiaries will have more income, which will then get spent, thus stimulating the economy.

6. They are impervious to evidence and instead are motivated solely by a sense that there should be a minimum income in a “fair” and “compassionate” society.

It’s quite possible, of course, for someone to support higher minimum wages for more than just one reason. Indeed, I suspect  supporters of the minimum wage can be divided into two groups. The politicians and union bosses tend to believe in higher minimum wages for reasons 1, 2, and 3, while ordinary people are likely to support intervention for reasons 4, 5, and 6.

But regardless of what they believe, they’re wrong. This Cato study has all the evidence you could possibly want. But if you don’t have time to read the paper, this video is well worth a few minutes of your time.

Walter Williams also has weighed in on this issue, noting specifically the negative impact of higher minimum wages on minorities.

Sadly, this is one of those issues where it might not make a difference which party wins in November. Romney already has said he favors not only an increase in the minimum wage, but also indexing, which means automatic increases in the future.

P.S. Here’s a very good cartoon showing the impact of raising the minimum wage.

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Being a libertarian, I’m used to disappointment. So when something actually goes according to plan, I get very happy.

On that basis, I should be utterly and deliriously overjoyed about my endorsement of Francois Hollande to be President of France.  I wanted him to win, in part because he would engage in statist experiments that would help discredit bad policy.

Well, all my dreams are being fulfilled. Here’s some of a new report in the Wall Street Journal.

French Socialist President François Hollande is set to increase the minimum wage by more than inflation, betting consumers will help revive the country’s stalling economy, while his government levies more taxes on the wealthy and large corporations in a bid to reduce the budget deficit. …The government also is preparing to unveil tax increases to make good on its pledge to reduce the budget deficit to 4.5% of yearly output this year and 3% in 2013. The list includes a new tax on dividends, a new top income-tax bracket of 75% for people earning more than €1 million a year, and increases in the wealth and inheritance taxes.

It’s not terribly surprising that Hollande’s going the fully Monty with higher taxes. Indeed, I’ve already mocked those plans.

But I’m surprised that he’s pushing a higher minimum wage as well, particularly with unemployment already at high levels. This video explains why minimum wages undermine job creation and hurt the less fortunate, but Hollande apparently thinks his plan will stimulate growth.

Other European nations have become more rational and now understand that labor markets need to be more flexible.

The Smic increase and the fiscal plan are in line with Mr. Hollande’s election promises but position France at odds with most other euro-zone nations, which are seeking to keep a lid on labor costs to improve their competitiveness and rein in their budget deficits through spending cuts rather than tax increases.

The comment about “spending cuts” is nonsensical, however. Even though traditionally left-leaning organizations such as the World Bank have concluded that government is far too big in Europe, most governments have imposed huge tax increases. Only the Baltic nations have focused on spending cuts.

As such, we can expect more news like this in France.

In France, economic growth has evaporated, with national statistical office Insee forecasting a further rise in the jobless rate, from 10%. Flag carrier Air France last week said it needs to shed more than 5,000 jobs, around 10% of its workforce, by the end of next year.

The nation’s dwindling productive class, meanwhile, will get even smaller since we’re already seeing evidence that investors and entrepreneurs are going to escape to other nations with less punitive tax regimes.

I joked last month that Obama would never be able to make America as socialist as France, and Hollande is confirming that tongue-in-cheek prediction with his crazy policies.

But I should state that I don’t actually want the French people to suffer. But if they elect bad people who impose bad policy, then I want to make lemonade out of lemons and at least help the rest of the world learn from their mistakes.

As my friend (and soon-to-be American citizen) Veronique de Rugy explained in a video, we don’t want America to become more like France.

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