Defining the Minimum

There are always minimum requirements. Kids at amusement parks know that, because they must be “this tall” to ride the Banshee or the Cyclone or the Vomit or whatever the amazing ride is. There’s no point in whining. It’s a safety thing, for everyone’s good, and there’s the matter of the park’s liability and its insurance premiums. Colleges have admission standards too – a minimal grade-point average and test scores of at least what would be minimally acceptable, and a demonstrated ability to read and write and do some basic math too. That’s just the floor, because there’s no point in wasting everyone’s time on some kid who’s going to drop out in a week. There’s no point in creating a disaster, which is what the commercial banks, working with the investment banks, working in turn with hedge fund managers, didn’t consider in the years running up to the 2008 collapse of the economy. Something changed earlier in the decade. The minimum standard for obtaining a mortgage on a house used to be a steady job and a reasonably good credit rating – to prove that you could pay the monthlies and that you would pay them – and twenty percent down, so you wouldn’t suddenly just mail in the keys and walk away from that thirty-year obligation, leaving the bank holding the bag, and the house. Then that all changed – the minimum requirement for obtaining a mortgage became, as the joke went, having a pulse. The bank was going to sell that mortgage that didn’t meet any minimum standard to the other parties anyway, as part of a massive bundle of mortgages – Triple-A “assets” that could be sliced and diced and resold on the open market in other new bundles, even if everyone must have known the underlying mortgages probably weren’t “assets” at all. That didn’t matter. No one held any of the various new bundles for more than a day or two – they’d be split up recombined and resold again and again, passing the underlying risk on, like a hot potato – and everyone bought insurance from AIG anyway, those credit-default swaps, in case they were the one stuck with the hot potato on any given day.

We all know how that went – not well. It all collapsed, and those stuck with the hot potato, a portfolio of mortgage-back securities, turned out to be pension funds and state and local governments, and the unlucky investments banks and a few large commercial banks. Those banks that didn’t go under merged with unlikely partners to survive, because AIG was long gone. They never had the funds to cover all those swaps, at least not all at once. The government had to take that eighty-percent-stake in AIG so someone’s ass was saved, so at least someone’s losses were covered – but all credit froze for a time anyway. Businesses were going under left and right, even General Motors – they now couldn’t borrow even a dime to finance their day-to-day operations – and people lost their jobs, and many lost their homes. In the last months of the Bush administration the Troubled Asset Relief Program (TARP) cost the American people seven hundred billion dollars, in an attempt to unfreeze the whole financial system.

That worked, sort of – the government ended up just shoving tens of billions of dollars at the big banks, in the form of cold hard cash, again and again, in the hope that they’d lend it out at a tidy profit and credit would start to flow again. That was the only option. Untangling and then buying all those “troubled” assets would take forever, if it could be done at all, and what price should the government offer for them? No one had the slightest idea what any of those “assets” might be worth at that point.

No one knew what they were worth in the first place, but that was by design. The whole thing had been an informal experiment in free-market capitalism. This was no grand plan cooked up by a few fanatical libertarians, but there had been obvious implied presumptions. Just think – if there were no rules for defining what an “asset” is, which should be the case in a free market, where government standards just get in the way and always make everything worse, then folks would buy and sell whatever they want, freely, by mutual consent, at their own risk, and many would get very rich and the economy would really take off too, making everyone else rich. Minimum standards, on the other hand, would hobble the economy and assure perpetual stagnation – they always do. Freedom is everything. We should try more of it. It assures endless prosperity.

That’s a fine theory, but things didn’t work out as planned. Amusement parks and colleges have their own minimum requirements for this and that for good reason – to avoid disasters and to keep folks from wasting everyone’s time with nonsense. Minimum requirements keep us safe – as in food-safety standards and safety standards for vehicles of all sorts, and of course the FDA keeps not only dangerous drugs off the market but totally useless ones too. Obamacare, like it or not, sets out the minimum requirements for health plans, for what insurance companies must offer, and what they must do now and what they cannot do any longer. Scream all you want about the end of freedom in America, but in these matters freedom ended long ago. We’ve been defining the minimum requirements necessary to the smooth operation of the country all along.

We did that with the Fair Labor Standards Act of 1938 – Hugo Black drafted it, when he was a senator, before his years on the Supreme Court, and FDR signed it into law. There would be a maximum forty-four-hour seven-day workweek, and guaranteed time-and-a-half for overtime in certain jobs, and it prohibited the employment of minors in carefully defined “oppressive child labor” – and there was no getting around it. It applied to employees engaged in interstate commerce, or employed by an enterprise engaged in commerce, or in the production of goods for commerce – which was just about everyone – and it established a national minimum wage too, for the good of the country. Do an honest day’s work and you should be paid a reasonable wage – money you’ll spend to keep the economy humming along. The economy will improve, but at the time the usual suspects screamed bloody murder – about freedom and free markets and the Invisible Hand and whatnot, and claimed this monstrosity would kill the economy, because businesses, living on the edge, couldn’t afford to pay workers even a penny more, and would let go of workers they now couldn’t afford – and anyway, the government had no business telling business what to do. What does the government know about the real world?

There was no disaster. We’re still here, but the old issues are new again. Obama and the Democrats are pushing for increasing the minimum wage to 10.10 an hour, not the current 7.25 an hour, getting it back to where it should be, adjusted for inflation – the last increase was in 2009 or so. The usual suspects, the Republicans, are outraged, but Jamelle Bouie reports that this time there have been some surprises:

For a few hours on Friday, Mitt Romney was the subject of positive press. Why? Because, in an interview on MSNBC’s Morning Joe, the former Republican presidential candidate pushed his party to back a minimum wage increase – “I, for instance, as you know, part company with many of the conservatives in my party on the issue of the minimum wage. I think we ought to raise it,” Romney said, “because frankly, our party is all about more jobs and better pay.”

Romney wasn’t alone. “There are some basic things that we should be for, and one of them is a reasonable increase from time to time in the minimum wage,” said former Minnesota Gov. Tim Pawlenty, also speaking on Morning Joe. Former Pennsylvania Sen. Rick Santorum followed suit on The Daily Rundown, telling Chuck Todd that Republicans should be okay with an occasional increase in the minimum wage. And on Tuesday, in an address to the American Enterprise Institute, Ohio Sen. Rob Portman endorsed his state’s move to index the minimum wage to inflation.

Bouie tells us not to be fooled:

For the large majority of Republican lawmakers, there’s no reason to raise the minimum wage. And when Democrats raise the issue, they push back with the usual reactionary rhetoric.

“When you raise the cost of something, you get less of it,” said House Speaker John Boehner, after the White House revealed its plan to raise the minimum wage for federal contract workers. He continued: “We know from increases in the minimum wage in the past that hundreds of thousands of low income Americans have lost their jobs.”

Likewise, after voting to block cloture on a minimum wage bill in the Senate – thus killing the proposal – Indiana Sen. Dan Coats, the senior Senate Republican on the Joint Economic Committee, said, “Raising the minimum wage creates winners and losers – it will raise the wages of some but result in job losses for many low-income workers. The true problem plaguing impoverished Americans is not low wage rates but a lack of good job opportunities.”

Bouie is not impressed:

In both instances, the message is that an increase is either futile or counterproductive – a cure that’s worse than the disease. We know that’s an exaggeration. According to a February report from the Congressional Budget Office, the Democratic proposal to raise the minimum wage to $10.10 would reduce total employment by 500,000 workers over the next three years. At the same time, it would lift more than 900,000 families out of poverty and increase the incomes of 16.5 million low-wage workers. What’s more, it’s reasonable to think we would gain jobs as a result of new economic activity generated by higher wages and new consumer spending.

But none of this mattered to Republicans who read the report. For them, it was vindication. “Raising the minimum wage could destroy as many as one million jobs, a devastating blow to the very people that need help most in this economy,” said Senate Minority Leader Mitch McConnell, all but speaking for most of the Republican Party, and echoing decades of rhetoric against increasing the minimum wage.

And there’s this:

If raising the minimum wage destroys jobs and prevents employment, then lowering it would do the opposite. And if you gain from lowering the minimum wage, then why have one at all? At least a few Republicans – including two presidential contenders – seem to have wondered as much, and have gone to where that logic leads: Complete opposition to the minimum wage.

Kentucky Sen. Rand Paul, for example, has no tolerance for the minimum wage. “When you set the minimum wage, it may cause unemployment,” he told ABC News during his 2010 Senate campaign. “The least skilled people in our society have more trouble getting work the higher you make the minimum wage.”

Similarly, Florida Sen. Marco Rubio sees the minimum wage as an exercise in futility. “We all support – I certainly do – having more taxpayers, meaning more people who are employed,” said Rubio. “The problem is you can’t do that by mandating it in the minimum wage laws. Minimum wage laws have never worked in terms of having the middle class attain more prosperity.”

The same is true of Tennessee Sen. Lamar Alexander, who – when asked if he does not “believe in the concept of a minimum wage” – responded in the affirmative, and said that he would abolish the standard if he had a chance.

Most recently, one of the Republican candidates for Senate in Georgia, Karen Handel, told ThinkProgress, “The federal government has absolutely no business being involved in mandating salary and wages in the private sector.”

It’s early 1938 again, and Obama is FDR of course, with an odd parallel to those who were screaming at FDR then:

As it stands, huge majorities support a minimum wage increase, which – by definition – includes Republican voters. In a winter poll from CBS News and the New York Times, 65 percent of Americans favored raising the minimum wage, including 53 percent of non–Tea Party Republicans. A Gallup poll conducted in March found similar results. There, 71 percent of adults favored an increase in the minimum wage, including 50 percent of self-described Republicans and 54 percent of self-described conservatives.

Republican politicians might be united on the minimum wage, but Republican voters aren’t, and that difference is why Democrats are laser-focused on raising the minimum wage. Touting an increase doesn’t just motivate the base – a key part of any turnout strategy for Democrats – it potentially wins Republicans, or at the very least sows discontent between the party and its supporters.

For both sides, turnout is everything in this year’s elections. And if Democrats can discourage even a handful of Republicans, then they’ve won themselves an important boost.

In the National Review, Ramesh Ponnuru pushes back:

For one thing, it’s not just opponents of a higher minimum wage who think it would destroy jobs while a lower one would create some. Almost everyone who has thought about this question believes these claims are true. Most proponents of a higher minimum wage think the trade-off is worth it because the job loss will be small and the benefits to people who will receive the higher wage large.

Opponents of an increase sometimes say to the proponents, “If $10.10 is such a good idea, why not $25?” This is not a great argument, because the proponents can reasonably say that the trade-off in that case would be much worse. But if it’s logically possible to favor a $10.10 minimum wage but not a $25 one, then it’s also possible to favor a $7.25 one and not a $10.10 one.

It’s all arbitrary, and thus stupid. Minimum requirements, establishing one thing or another, are the work of bored busybodies or something. Let it be, and do no harm, but Slate’s Jordan Weissmann points out here that simply abolishing the minimum wage wouldn’t necessarily lead to good things either:

It’s easy to think up reasons why nixing the minimum wage might not lead to a flood of new career opportunities for the unskilled. Because we have minimum wages today, businesses are required to work at a certain level of efficiency. Unless a business is understaffed, adding a new worker, even a cheaper one, might not be particularly profitable.

Or take technology.

Minimum-wage skeptics often point out that when employing a real live human being becomes too expensive, companies start buying computers and machinery instead. In a post-minimum-wage world, it seems unlikely that businesses would suddenly throw their profitable business models into reverse, and start scooping up cheap workers to handle tasks they had already purchased fancy new equipment to accomplish. Your local McDonald’s, for instance, wouldn’t suddenly return the fancy new soda machine that lets customers fill their own cups with umpteen variations on Diet Coke, just so that it could hire another person to work behind the counter for $4 an hour.

Of course, there’s another big question to answer: If we ripped up the wage floor, would pay for low-skill workers actually fall all that much? It’s hard to say. First, many low-wage businesses still offer their workers more than the absolute minimum. Second, wages tend to be “sticky,” meaning that once they go up, they tend not to come down. The reason why is still a bit of a mystery, but it likely has a lot to do with the fact that making your employees take a pay cut is a) emotionally unpleasant for both parties and b) a good way to sap their motivation on the job.

Employment is a complicated business, and yes, making your employees take a pay cut is a nasty business all around, but insisting that your employees make do on the current minimum wage can lead to no end of troubles:

A year and a half ago, it was 200 striking workers in a single city. As of this week, it’s a global movement.

On Thursday, thousands of fast food workers across the United States initiated the latest in a series of day-long strikes against their employers. As with every successive strike, this one was the largest yet, encompassing workers and fast food restaurants in 150 American cities.

But that’s not the only thing that made this strike different. Thursday was also the day that the movement became truly international, as workers in 33 different countries rallied in support of the American strikers.

The American fast food workers are demanding a $15 industry-wide wage floor and the right to form a union. Walkouts took place in every region of the country, including the South, where labor organizing is notoriously difficult. Major cities such as Philadelphia and Miami had their first-ever fast food strikes, as workers across six continents rallied in support. The solidarity protests occurred in countries as diverse as Germany, India, New Zealand, Malawi and Brazil.

This of course was inevitable:

As the movement has grown, more elected officials and high-profile activists have rushed to associate themselves with the strikers. Members of the Congressional Progressive Caucus joined picket lines in their own districts, as did various state and local officials.

“Where Congress is failing to take action to address inequality, these workers are leading the way,” said Rep. Keith Ellison, D-Minn., co-chair of the Progressive Caucus and an early supporter of the strikers, in a statement. “Their fight for $15 and a union is a shining light that will ultimately benefit all workers in the country and help lift up our economy. It’s clear this movement isn’t going to stop until fast-food companies listen to the voices of these workers, who are struggling to support families on as little as $7.25 an hour.”

But as the New York Times reports, this is an organized effort:

Over the last decade as American labor unions have declined in membership and power, they have increasingly turned to unions in Europe and Asia to help pressure companies overseas to stop battling organizing drives at their United States units. And now the fast food movement, underwritten by the Service Employees International Union, is embracing a similar strategy as it struggles to gain influence with the fast food giants.

James Sherk at Heritage Foundation is all over that – the Service Employees International Union (SEIU) has one end goal here, taking dues from millions of fast food workers. They’re the ones who are exploiting these workers, not McDonalds and Burger King. Jimmy Hoffa lives. And Josh Encinias at the National Review offers this:

Young leaders wearing Communist-party buttons and Socialist Alternative t-shirts led an event in Manhattan’s Herald Square, calling for a minimum wage of $15 an hour and the right to form unions without retaliation. …

That seemed to be precisely who showed up in New York Thursday: front groups organized by union activists, financed by union dues, and relying on low-wage workers who have little understanding of how or why they would unionize, dedicated to pursuing the Left’s larger goals. Those goals obviously did include a $15 minimum wage, which, one might add, would likely reduce fast-food jobs but would definitely mean raises for many workers on union pay-scales.

Ah well, it’s the usual suspects saying the usual things, and under all the dire warnings about Jimmy Hoffa teaming up with Leon Trotsky to delude and then take from these poor hapless workers what little they do have, there’s that same theory about freedom and prosperity – that setting minimum requirements for anything ruins everything, assuring poverty for everyone. Here it’s the minimum wage. Maybe someone should ask them how that worked out with home mortgages only a few years ago. There is a parallel.

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About Alan

The editor is a former systems manager for a large California-based HMO, and a former senior systems manager for Northrop, Hughes-Raytheon, Computer Sciences Corporation, Perot Systems and other such organizations. One position was managing the financial and payroll systems for a large hospital chain. And somewhere in there was a two-year stint in Canada running the systems shop at a General Motors locomotive factory - in London, Ontario. That explains Canadian matters scattered through these pages. Otherwise, think large-scale HR, payroll, financial and manufacturing systems. A résumé is available if you wish. The editor has a graduate degree in Eighteenth-Century British Literature from Duke University where he was a National Woodrow Wilson Fellow, and taught English and music in upstate New York in the seventies, and then in the early eighties moved to California and left teaching. The editor currently resides in Hollywood California, a block north of the Sunset Strip.
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One Response to Defining the Minimum

  1. Rick says:

    Two things: (1) Thoughts on the minimum wage, and (2) Advice to Republicans on how to climb out of their hole.

    (1) You’d think it would be fairly simple to find studies that show, one way or the other, whether raising the minimum wage is harmful or helpful, wouldn’t you?

    Apparently, it’s not. There’s pretty much just one study, known as Card and Krueger, that everyone cites on this:

    “In 1992, the minimum wage in New Jersey increased from $4.25 to $5.05 per hour (an 18.8% increase) while the adjacent state of Pennsylvania remained at $4.25. David Card and Alan Krueger gathered information on fast food restaurants in New Jersey and eastern Pennsylvania in an attempt to see what effect this increase had on employment within New Jersey. Basic economic theory would have implied that relative employment should have decreased in New Jersey. … Based on data from the employers’ responses, the authors concluded that the increase in the minimum wage slightly increased employment in the New Jersey restaurants.”

    So that’s that, right?

    Not so fast. Subsequent battling studies showed, alternately, a negative effect, then none, then yes, but mostly on big fast food restaurants and not on small ones, especially for teen and youth employment, and later, none again. Also, while public sentiment overwhelmingly favors raising the minimum wage, economists mostly disagree; roughly 82% say, although with provisos, they think an increase increases unemployment, except among those economists who specialize in labor issues, who slightly favor an increase. So as for a definitive consensus, there isn’t one.

    I myself suspect that employment does initially drop, but that in time it probably increases above where it began, due to the “Fordism” effect, named after Henry Ford famously increasing the wages of the workers building his Model T so that they could afford to buy the product they were building. This, I’m guessing here, helped not only his own business but the economy of the entire community, since his workers then had money not only to buy the tin lizzie but also to buy more groceries for their ice-box and paint for their houses and shoes for their kids. And all of this, one would think, might very well mean more jobs at the local grocery stores and paint stores and shoe stores.

    But all that takes time to happen and is too complicated for anyone to quantify, which is I guess why I can’t find any studies that either verify or refute my hypothesis. Someday there probably will be some, and maybe, just maybe, then we’ll stop all the back and forth on this.

    In the meantime, the fact that Republicans are, once again, against something most people are for, brings me to this bit of advice:

    (2) The Republicans, being against raising the minimum wage, find themselves on the wrong side of public opinion on an issue, just as they do on gun control (most Americans strongly favor it) and abortion (same) and Obamacare (most want to keep it; even though polls show most people don’t like it, that seems to include many who prefer “single-payer”). Republican leadership needs to understand that this business of disagreeing with America on all these issues is actually a problem for them.

    One of the obstacles they need to overcome is that the Democrats have staked claims on all the popular stances, and have even, as in the case of Obamacare and Cap-and-Trade, co-opted some that had originated on the right, which the Republicans subsequently felt they had to abandon. It goes back to that business of differentiating the product, which is something they should stop working so hard at.

    Remember George Wallace’s campaign slogan back in 1968 — “There’s not a dime’s worth of difference between the Republicans and Democrats”? Well, maybe it should occur to the Republicans that’s the way things should be. In fact, both parties fighting over ownership of all the good ideas, instead of the way it is now, would certainly be better for America.

    Rather than trying so hard to be different — glomming onto all those stupid, weird, and unpopular ideas, such as all that libertarian crap their Ayn-Randy Tea Party wackadoodle friends are always pushing on them — maybe the Republicans should just fight for what’s right, even if it’s territory the Democrats are already occupying, and compete on the basis that they themselves would be more competent at implementing those policies that most Americans agree are the right ones to put into place — one of those probably being raising the minimum wage.

    For one thing, I would think concentrating on how to compete over the good stuff would keep them from wasting all that time on all the stupid things they are forced, by default, to contemplate, such as closing down the government, defaulting on our debt, shutting down Obamacare, keeping foreigners from crossing the border to work here, and searching for ways to keep people from voting.

    Yeah, I know. It sounds totally off the wall and counter-intuitive, and a huge gamble for them. But after a rough transition period in which they jettison their so-called “base”, most Americans should, sooner than most people think, adjust to the new and improved party, one that would be in a much better position to give the Democrats a run for their money in the race to the White House.

    Rick

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