Minimum Wage Hikes Are Not Pro-Life

May God bless Mark Shea, who thinks he is helping.

Mark is calling for a $15/hr minimum wage.  He has done so many times before, and he's likely to do so many times again, no matter what havoc it wreaks upon the poor, or how much it entrenches us in our poverty.  He still believes it will help.

And a higher minimum wage does help, but not who he thinks, and probably not as much as it harms even them.  As I explained in an earlier post, it helps union workers, especially among unionized government employees, members of unions like the SEIU and AFSCME.  Their contracts specify wages not as $X/hr, but as $(minimum wage)+Y/hr.  Increasing the minimum wage to $15 will give all such employees a $7.75/hr raise that they don't have to negotiate for, and that all other government budgets must be built around.

The first victims of minimum wage hikes are people who have a hard time making money for their employers even when paid only minimum wage.  Redpanels has illustrated this:

What happens to those jobs?  Typically, they are either automated or turned over to the customer.  Why do you have to pay to use the air compressor to fill your tires?  Why do you think nobody pumps your gas, washes your windshield, and checks your oil for you, like Gomer Pyle did in 1962?  Why do fast-food restaurants, 7-Eleven, and convenience stores and gas stations, one and all, have self-serve beverage fountains?  Where are all the soda jerks?

I live is a small town, with a population under 1000.  It's rural; the closest shopping outside town limits not counting gas stations is at least eight miles away.  Why do you think the McDonald's in the small town where I live bought a robot to fill sodas for the drive through?

What happened is that the minimum wage has made it unprofitable to hire people to do these jobs.  My guess is that the total cost of hiring a minimum wage employee, including minimum wage plus the employer's Social Security and Medicare taxes on wages paid plus the workman's comp and unemployment insurance premiums employers are required to pay plus the cost of keeping track of hours and computing all these things and sending the various payments where they have to go plus all other labor costs, adds up to quite a bit more than $7.25/hr, probably at least $10/hr and could be as high $12/hr.  Anyone whose labor doesn't make his employer a profit after paying all these costs does not get hired.

In fact, my own job would go underwater should the minimum wage rise to $15/hr.  And that's why I got really mad at Mr. Shea.

I work as a certified nurse aide (CNA) in a skilled nursing facility (nursing home).  My job is to help the residents with activities of daily living (ADLs) such as dressing, getting into and out of their beds and wheelchairs, moving to and from the toilet, eating, bathing, shaving, brushing their teeth and hair, taking their vital signs, helping them with other things as they need me to, and observing them for potential health issues, particularly pressure ulcers (bedsores) and other skin issues.  Almost nobody in this job gets paid $15/hr.  It's very rewarding in other ways, but it is hard work that doesn't pay well.  When I took the class to qualify for the Nurse Aide Certification Exam, the instructor told us that anyone able to read and write at a 10th grade level should be able to pass the class and the NACE.  And so it was.

The thing is, it takes about 1 CNA per nine residents to get everything done right and done well for all these residents during the daytime, and probably around 1 CNA per 15 residents at night.  You might get by with ratios of 1:12 during the day and 1:18 at night if you're willing to forgo things like oral hygiene (important for adequate eating, and preventing pneumonia and heart disease), proactive toileting, frequent bathing, incontinence rounds every two hours, and resident dignity, privacy, preferences, and safety.

When the minimum wage rises, every employer who pays less than the new minimum has to do one of three things:  increase revenue, increase productivity, or cut hours. Otherwise, they go under.  What this means for the nursing home administrator with about 90 residents is that if he's going to keep the same staffing level, he very likely will also have to come up with an extra $3900/yr in revenue for each resident, JUST for the increase in minimum wage, JUST for CNAs -- we aren't adding in rest of the labor costs for keeping those CNAs yet, let alone the suddenly-increased costs for staffing the dietary, housekeeping, maintenance, and laundry departments yet.

Most nursing home resident care is paid for by Medicare and Medicaid.  They are not going to kick out the extra $5000+ per resident per year.  Remember, hiring and keeping employees just got a LOT more expensive, perhaps nearly twice as much.  When prices go up, it puts downward pressure on purchases, so hiring and employment will go down.  Because Medicare's single largest source of revenue is payroll taxes, the giant jump in unemployment is likely to prevent Medicare from getting any sort of increase in revenue; rather, revenue will likely decrease.  So too will reimbursement.  And that means fewer CNAs to help residents live healthy lives.  Rather, we can expect that one result of an increase of the minimum wage to $15/hr is that nursing home residents will face a lot more neglect, and for many, homelessness as their facilities are driven under by a misplaced desire to be generous with other peoples' money.

May the Infinitely Merciful protect my residents from that.

Justice and Prison

I have thought for some time that our prison system was unjust. It turns out that it's also unneccessary. An article in the New Yorker addresses both the injustice of our prisons, and what reduces crime.

One problem is that our justice system is misnamed. It is a criminal prosecution system. Its interest is not in justice and common law, but in statues, regulations, and procedural correctness. Prosecutors do their best to ensure that exculpatory evidence is never introduced, and work assiduously to avoid jury trials (to save time and money), and juries are never told to consider justice in convicting and giving sentencing recommendations. Is this a prudent way for a just society to order their priorities? Are time and money more important than justice?

A more just punishment would involve restitution, not incarceration. Stealing should involve not just paying back what you stole, but being forbidden the opportunities you used to steal. Embezzlers should not be allowed to go back into positions where they have authority over money.

Crime is prevented by simple things like reducing opportunities to commit them. Dr. Ruwart pointed out almost 20 years ago that if you reward police for reducing crime, instead of convicting criminals, they will act to do so -- and save us money in the process.

Another simple way to reduce crime is not punishing people for owning or using a little weed. (No, I don't use or approve of weed. I'd rather have a drink myself, even though I can readily recognize that ethanol causes a lot more adverse medical outcomes, that can easily be a lot more serious.) Relegalizing opioids and cocaine can come later.

Dolan's Jan 25 op-ed

I searched around the internets, and found Abp. Dolan's Jan 25 WSJ op-ed, without hacking my way through the Wall Street Journal's paywall. Go and read it.

One thing he points out, which far too many people neglect or allow themselves to disregard, is this:

The rule forces insurance companies to provide these services without a co-pay, suggesting they are “free”—but it is naïve to believe that. There is no free lunch, and you can be sure there’s no free abortion, sterilization or contraception. There will be a source of funding: you.

There is no free lunch, anywhere. Somebody always pays for whatever you may be given. In far too many cases, it is you, in ways you will not be able to see.

Disaster is Disaster

I've seen opinion pieces talking about how nice it is that so much destruction has occurred in Japan and elsewhere; now we can all get rich helping them clean up and repair!

Walter Williams rightly calls that Economic Lunacy. Nope, the people in Japan are poorer now, and as a result, they are going to have to buy replacements for their homes, cars, clothes, and infrastructure, instead of producing other useful goods. More goods means more wealth and lower prices.

Another example of economic lunacy, by the way, is complaints about the trade deficit. The trade deficit is balanced, CENT FOR CENT, with a foreign investment SURPLUS. It means that foreigners are putting capital into our companies. Furthermore, it means that we are richer than the people we're importing from. Here's a sane explanation:

Yet Another Blogrolled Video

This one came to my attention via Dr. Sanity (she's in the sidebar; I'm too lazy to look up the link right now).

This video is one of those XtraNormal videos of little to no artistic merit, beyond the dialogue. This one intends to be very informative on the subject of quantitative easing, and it by and large succeeds.

How To Have An Austrian School Economy

Salute to the Western Confucian. Full article at A Conservative Blog for Peace. Actual text by Bishop Williamson of the SSPX.

Excerpted are the seven commandments of Austrian School Economics:

1. Thou Must Earn.
2. Thou shalt not spend more than thou earnest.
3. No state may make too many rules.
4. No state may tax too much.
5. No state may spend its way out of a recession.
6. No state may print its way out of a recession.
7. No state may employ its way out of a recession.

Seem like very solid rules to me. I wish we had a government that would follow them.

Best of 2009

I've been looking over my writing here in 2009, and sort of wondering, "How will I ever find enough stuff I think is good enough to go into a post like Best of 2008 and Best of 2007?

So I was doing something largely unrelated, namely, browsing Conversion Diary, and what to my wondering eyes should appear, but this post. The goal? To pick One Thing from last year.

Well, here it is: Supply, Demand and Price. It started out as a gigantic wall of text, but (Deo Gratias!) I split it up into six more easily digested hunks. It's in my list of Oft-Cited Quotes (see the sidebar, near the bottom).

Per the usual request, here is a link back to the Mr. Linky List.

Government Intervention and High Prices

I found this article, by Dr. Mark W. Hendrickson at Grove City College. He discusses the history of meddling with prices, and how it raises costs. It's worth a read. But in the first comment, along comes this, from Joe DeVet:

[T]here’s a moral dimension to messing with markets which is often overlooked in Catholic discourse about “social justice.” We Catholics proclaim a “preferential option for the poor”, but as the discussion goes on, many other competing “social-justice” goals tend to get in the way. We see a problem like the loss of the family farm, and we figure we’ll subsidize plowing crops under and killing piglets for the sake of the farm. We see a minority who don’t have health insurance, and are tempted to think remaking the whole health system will help those few.

At the end of the day, we may have helped SOME poor in the short term, but have harmed all the poor in the longer term. Prices are higher and goods and services more limited as a result of the interventions. The rich (includes you and me) are inconvenienced; the poor actually suffer. They don’t just “feel” poorer, as the author states, but ARE poorer.

So much for the “preferential option.” Bearing this in mind, we need to recognize that it is not only a bad idea to intervene in markets the way the current administration is trying to do, it is actually sinful.

Meddling with Prices: Subsidies

The government may provide a subsidy. The government takes tax money and uses it to pay part or all of the price of a good, and gives that good to some beneficiary. The good is both overproduced and overconsumed, but incentives to produce it efficiently or at increased quality are decreased. People don't care as much about these when they didn't themselves earn the money they are spending.

One of the most prominent examples these days is The Scooter Store. Tax money is diverted to scooters, increasing the seller's revenue while reducing or eliminating the buyer's cost. Consumers are more likely to buy, and not likely to hunt for bargains. Producers have an incentive to make more, but not to cut costs or prices. They both win, as do the government employees who administer the program. The losers are everyone who would have liked to use their tax money for something besides buying a scooter for somebody else, and anyone who competes with scooter manufacturers for land, employees, and raw materials.

Health care is rife with subsidies. This article by David Goldhill tells many of the ways that health care costs are diverted from people who get health care to others, and the problems this causes. When the customer isn't paying, he doesn't bother to look for a bargain. When the supplier knows he's going to get paid no matter what he does, he has no incentive to cut costs or improve quality. Mr. Goldhill's story about handwashing is a perfect example.

Another prominent example is postsecondary education (ie, at colleges and universities). As Pell grants and Stafford loans have increased, so too has tuition, ensuring that the market is always charged all that the family of the student can bear, PLUS any subsidies and financial aid they can acquire. And college students learn less and less about how to think and learn with each passing decade.

The housing crisis is also a case of subsidies causing problems. Fannie Mae and Freddy Mac are both federally subsidized companies that would promised to buy risky home mortgages from banks. Basically, they told the banks, "Make a loan to anybody who has a pulse and fills out an application. It doesn't matter if they've never paid off anything in their lives, or if the monthly payment would be twice their monthly income. If they don't pay it back, the government will buy the mortgage from you and collect the money from the borrowers." Artificially increased demand caused artificial increases in price. The artificial increases in price drew extra people into home construction. Most people who were getting the loans and knew they couldn't pay them off didn't care. They figured somebody else would come along before disaster struck and buy the home from them for enough to pay off the entire mortgage and put some money in their pockets besides.

Fannie Mae and Freddy Mac started running out of tax money to buy up bad loans, so they started selling their loans to investors and banks as "innovative mortgage-backed securities." They, and the banks, treated these MBS as part of their capital base. This meant that they could count them as part of their 3%-5% of assets that they actually have to keep on hand to pay depositors and creditors. The value of these things is hard to determine. What people are willing to pay for them at any moment may be a far, far cry from how much money they would bring in if you held on to them. The Federal Accounting Standards Board prefers that assets be valued at what people last paid for it.

How does this work? Imagine a mutual fund, whose primary asset is 10,000 mortgages, that the mutual fund company bought from Fannie Mae. Let's call it "Fannie's Upstanding Collection of Homeowners" and assign it the symbol, FUCHXX. They sell 10,000,000 shares of this agglomeration of mortgages. Your bank buys 10,000 shares of FUCHXX at $40. So they have $400,000 in FUCHXX. They count it as a $400,000 asset, even though they expect it to eventually pay them $800,000 in dividends. Then they loan out $8 million on the strength of that asset, most of which they borrowed.

News comes out that the default rate on Fannie Mae mortgages is absurdly high. Nobody is willing to buy anything based on them. FUCHXX drops to $8 a share. Your bank now has to count it as an $80,000 asset. This means it now has to either come up with another $320,000 in assets, or buy back $6.4 million in loans. Your bank is in big trouble.

That is about what happened to cause the banking crisis that launched the $700,000,000,000 Troubled Asset Recovery Program of President Bush, and the (far larger) "stimulus" package that was recently passed by the Democrat Party and President Obama. Neither of these does much to address the real problem: people were given mortgages they couldn't afford to pay off, and builders built far more houses than people would have bought if they had been limited to mortgages they could afford. The artificially high supply of mortgages is gone, leaving banks and taxpayers holding the bag. The money can't be made back by selling the houses, either. The artificially high demand for homes is gone too, leaving them worth much less than the defaulted mortgages for which they are collateral.

In this series:
Supply, Demand, and Price | Price Caps | Price Supports | Restricting Supply | Excises | Subsidies

Meddling with Prices: Excises

The government may impose taxes on the purchase or sale of a product. The taxes get added to the buyer's cost, but not the seller's revenue. This has the effect of reducing both supply and demand, and also diverting both to alternatives that cost more to make, do the job less well, or both. This is done with sugar, and the business that sugar would get is diverted to corn syrup or other corn sweeteners. The IRS, corn farmers, and Archer Daniels Midland win. Sugar cane and sugar beet farmers, sugar refiners, everyone who likes sugar better than corn syrup, and anyone competing with corn syrup buyers for corn products, loses. Further losses are imposed by transaction costs.

President Obama's "Cap and Trade" scheme is another example of this. By greatly increasing the cost of combustion-generated electricity, he drives electrical utilities towards so-called "renewable" resources that either are far more expensive, far less reliable, have far greater impacts on local ecologies, or all of these.

In this series:
Supply, Demand, and Price | Price Caps | Price Supports | Restricting Supply | Excises | Subsidies

Meddling with Prices: Restricting Supply

The government may restrict supply, but leave the price free. This drives prices up. Approved providers win. Everyone else loses. This also reduces innovation. There are many, many markets where supply is artificially restricted. Franklin Delano Roosevelt did his best to restrict the supply of food during the height of the Depression, even when many people were struggling to feed themselves. He also used price supports. Real estate markets are restricted by zoning. And a vast array of professions are limited in supply by licensing. And the tighter licensing always results in more people, not less, either doing without or trying to do difficult or dangerous things themselves. For example, the more difficult it is to become an electrician, the fewer people become one. The fewer electricians there are, the more they charge. The more it costs to hire an electrician, the more people are too poor to afford one. The more people who can't afford an electrician, the more try to do electrical work themselves. The more unqualified people do their own electrical work, the more electrocutions there are.

Another example of restricting supply is the Cash for Clunkers program. Cars that get traded in are destroyed (see video), no matter how pristine and useful they may be. This reduces the supply of cars, driving prices higher.

In this series:
Supply, Demand, and Price | Price Caps | Price Supports | Restricting Supply | Excises | Subsidies

Meddling with Prices: Supports

Price supports involve the government increasing the price, above market equilibrium, and promising to buy up any extra. Obviously, producers make more, while consumers buy less, and the extra is either given away or otherwise wasted. In the meantime, money is taken from everyone as taxes and given to the producers. In the end, everyone loses except the producers (and the government employees who are paid to buy and waste the excess product).

Minimum wages are a bit different from other price supports. Rather than leading to excess production of labor, it leads to under-utilization of the labor supply, which shows up as unemployment. You might think that the government does not pay people not to work, but it does. There is unemployment insurance, disability, WIC and AFDC. While the recipients of these benefit somewhat, it is labor unions that benefit greatly. Union contracts do not set wages at $X per hour, but rather at "Minimum wage + $Y per hour." So the most recent round of minimum wage increases, from $5.15/hr to $7.25/hr over three years, has resulted in American labor unions getting a $2.10/hr raise, that they did not have to negotiate for.

The biggest losers when it comes to minimum wages are those who are not able to produce more than it costs to employ them. Examples include young blacks, who usually do not get as good an education as young whites; single mothers, who must have more flexibility in their work schedule; and the handicapped, for whom all manner of accomodations must be made, and who may not be able to do physical labor as well. Other losers include those who would otherwise hire these low-productivity workers. They have typically gotten their customers to take the place of such workers, by "offering" the "convenience" of self-service checkouts, drink refills, gasoline pumping and windshield cleaning. Another group that loses out because of minimum wages are those who would prefer to get paid with something other than cash -- minimum wages pretty much prohibit apprenticeship, as an example.

In this series:
Supply, Demand, and Price | Price Caps | Price Supports | Restricting Supply | Excises | Subsidies

Meddling With Prices: Caps

The government may set a price that is artificially low, that is, below what demand would currently cause. Richard Nixon did this, with gasoline, in response to the 1973 oil embargo. Because prices were low, there was no reason to make up for the drop in supply. Also, there was very little reason for people to try to conserve gasoline. The result was that demand greatly outstripped supply, leading to shortages. Then rationing was added, which imposed extra costs on buyer, seller, and the government. Gas lines were a fact of life throughout the 70s as a result of all this meddling. The winners were public officials who claimed "I DID something about the high price of gasoline," people who sold their extra gas rationing coupons, and gas station attendants who took bribes to let people buy when the rationing schemes were against them. The losers were everyone who waited in line for gasoline, and everyone who didn't make and sell more gasoline because the price wasn't high enough.

Rent controls do the same sort of thing. Supply is reduced, while demand is increased. The winners are politicians and people who live in rent-controlled housing. There is a long list of losers. First are the rent-controlled landlords, who cannot raise prices to deal with increases in their costs. Second are their tenants. Because their landlords are making little or no money, they often have to forgo ordinary maintenance and sometimes even vital repairs. Third are developers, who don't bother to develop new housing because the rents will be held below what they'd need to make their money back and a living. Fourth is the city, which doesn't get the property taxes from the properties the developers don't make. But the ones who suffer most are the people who cannot get a home. Some go homeless. Most go to live somewhere else. You get long lists of people waiting for homes instead of long lines waiting for gas, but the basic problems -- shortage and waiting -- are the same. And you get the other typical problem, which is essentially a black market. In the case of housing, this is a giant up-front fee charged by the landlord in order to finalize a lease.

In this series:
Supply, Demand, and Price | Price Caps | Price Supports | Restricting Supply | Excises | Subsidies

Supply, Demand, and Price

As a schoolboy, I was taught that demand has a direct relationship to price, and that supply has an inverse relationship to price. Chances are very good that you were taught the same. And it's important to know how supply and demand affect price, but that is very far from being the whole story. Price affects supply and demand, as well.

The Laws of Supply, Demand, and Price

• Increases in supply cause downward pressure on price.
• Decreases in supply cause upward pressure on price.
• Increases in demand cause upward pressure on price.
• Decreases in demand cause downward pressure on price.
• Increases in price tend to attract more resources to production.
• Decreases in price tend to divert resources away from production.
• Increases in price tend to reduce demand.
• Decreases in price tend to stimulate demand.

When supply, demand, production, and price are all allowed to affect each other naturally, there is a constant trend towards equilibrium in all of them. Then, the things we want most are taken care of first, and as inexpensively as possible. Almost everything that is produced is bought and used.

This is the core of the free market system. Prices are allowed to move freely, so people know what use of their resources will bring them the most money. And, all other things being equal, that is what they do. It all works really well until somebody (that is, the government) starts meddling with prices.

EDIT: this really was too much to do at once. I have decided to break the giant wall of text into several posts.

In this series:
Supply, Demand, and Price | Price Caps | Price Supports | Restricting Supply | Excises | Subsidies