Category Archives: Economic Colloquy

In the wake of the “Great Recession” we discuss American and world economic progress (or lack there of).

The Debt Society

Is it reasonable for a member of the first world, in this day and age to consciously decide they’re never going to retire until they simply can no longer work, then proceed to live a life well beyond their means and completely financed by debt?

Quite a few of my peers do this. Maybe they never actually sat down and did the math or gave much thought to it, but nevertheless, they live life in this manner. And I can only assume that they assume that eventually when they are unable to work anymore, the state will take care of them, or perhaps their children… or who cares! Right now they have a gorgeous home, two shiny cars in the garage and a few big screen TVs on the wall.

Our banker/debtor economy rewards us for this behavior. The entire economy revolves around spending and buying. Economic news reports revolve around consumer spending and retail holidays like Black Friday and Christmas (yes your read right! Christmas is a RETAIL HOLIDAY).

Hell, even our presidents get on TV and makes speeches urging us to get out there and SPEND- SPEND-SPEND! Who here remembers when G.W. Bush sent each of us a nice $300 check for each person in your family, encouraging us to go out and boost Wal-Marts quarterly sales numbers!

costcocrush

Further, saving for a rainy day is no longer rewarded. The Federal Reserve has made it so easy for banks to obtain lending cash, they no longer pay competitive interest rates on savings deposits, which they would have traditionally relied on for lending out to others and collecting profits on the spread between the rate they paid you and the rate they charged the next guy.

Today, money in the bank is money losing value. The average rate of inflation far exceeds the rates of interest paid on savings deposits. So what is a saver to do?

This is a question I find myself struggling with quite often. I am naturally a very risk adverse guy. Credit card bills and debt cause me to lose sleep at night. But more and more I can’t help but notice that it doesn’t seem to really matter, just so long as I give into the idea of actually ever quitting my job and drifting off into old age on a permanent vacation called retirement- or hell, just file for bankruptcy. There’s no debtors prison in the US, so why not?

It’s all a balancing act of course, but these are the tussles I have with myself from time to time. The best I know to do is stay grounded, remind myself I don’t need all these things, the retail gorge and glutton fest doesn’t have to be for me just because society encourages it at every turn.

More and more often, I’m turning off the TV, watching fewer movies, caring less and less about the world around me. Focusing more on me, my family, and my friends. Places like Costco feels more and more like a circus each time I visit, the retail circus full of retail circus clowns working all week and living for the weekend when they can go spend all the fruits of their time and labor spent toiling away during the long, uneventful weeks where all we do is dream of Friday, and when we get to go shopping again….

-Holden

Why A One-Size-Fits-All Minimum Wage Doesn’t Work For America

It seems to me that federally enforced on-size-fits-all minimum wage legislation is an ineffective way for policy makers to improve the standard of living for this country’s people.

I completely agree that something needs to be done. There are a thousand different ways we could improve the standard of living for the entire country. Simple and effective ways we could close the income gap between the richest and the poorest among us, but $10.10 an hour isn’t one of them. Frankly, it’s lazy policy making.

$10.10 an hour means different things in different parts of the country:

I think it is difficult for people in different parts of the country to understand what $10.10 an hour means to one another. Someone in New York City probably thinks that $10.10 an hour is slave wages while someone in Jackson, Mississippi (capital of MS) probably considers $10.10 an hour a livable wage. That is because the average cost of living varies wildly from region to region in the United States.

Average Cost of Living

Housing Prices Vary Wildly Across Major Cities: 

We can quickly compare median sales prices for homes across the country (source):

City Median Sale Price
Manhattan, NY $1,175,000
Jackson, MS $184,502
Seattle, WA $435,000
Atlanta, GA $245,000
San Francisco, CA $945,000

Gas Prices Vary Wildly Across Major Cities: 

We can quickly compare gas prices across the country (source)

City Regular Mid Premium Diesel
Manhattan, NY $4.052 $4.216 $4.354 $4.479
Jackson, MS $3.440 $3.642 $3.812 $3.737
Seattle, WA $4.035 $4.152 $4.255 4.109
Atlanta, GA $3.692 $3.871 $4.045 $3.893
San Francisco, CA $4.225 $4.342 $4.440 $4.291

Note: There are similar variances for food and clothing costs.

It is important to realize that these major variances are across major cities. If you compare rural areas to cities the variance is even more dramatic. So why does anyone expect a one-sized-fits-all minimum wage to work across the country?

The Solution: A Livable Wage that Fits

If we want to increase the minimum wage it seems like we need to make an effort to understand what that wage is in each part of country. We should not pick a number that everyone is expected to implement across the board. The country is to diverse for that to be successful.

What may be a fit for Seattle, WA would probably be overly burdensome to businesses in Jackson, MS. What may work in Jackson, MS would probably be insufficient in Manhattan, NY. So why do we treat wages the same when costs across the country are provably and undeniably different? This makes no sense to me.

Instead, it seems like we should empower our communities and local policy makers to actin the best interest of their constituents by providing the people living there with critical data and information to make better decisions for themselves. And if we are going to implement something federally (which I don’t think we should) – shouldn’t we at least make an effort to make it work for everyone?

We are a great country because of our diversity. There is something, somewhere, for everyone. We have always embraced that mantra. I don’t think we should stop now.

The Economics of Compounded Growth

Our economy slowly grows at around 4% a year. This is a given. An expectation. Anything less is seen as a failure, anything more is an achievement.

I read an article today that did a good job of putting that kind of growth into perspective.

“Let us imagine that in 3030BC the total possessions of the people of Egypt filled one cubic metre. Let us propose that these possessions grew by 4.5% a year. How big would that stash have been by the Battle of Actium in 30BC? This is the calculation performed by the investment banker Jeremy Grantham(1).
The trajectory of compound growth shows that the scouring of the planet has only just begun. We simply can’t go on this way.

Go on, take a guess. Ten times the size of the pyramids? All the sand in the Sahara? The Atlantic ocean? The volume of the planet? A little more? It’s 2.5 billion billion solar systems(2).”

This idea makes me wonder: Where is our breaking point? Where is the point in which we can’t sustain growth any longer? And what is our contingency plan?

I don’t know. Maybe we are already there. Maybe technology will let us keep going further than any of us ever dreamed. I don’t claim to know, but it’s certainly something we should all consider.

Problems and Solutions to the Broken Healthcare System

My wife and I recently had a little girl. Until that moment I had never been exposed to the healthcare and insurance ecosystem. I have been fortunate. I’ve never had an extended stay at the hospital, I’ve never been on prescription medication, and as an adult, I have never been to the doctor outside a checkup. Now I realize that the system is completely convoluted and non-transparent.

From what I can tell there are four major problems with the healthcare and insurance mechanisms.

1. Prices for healthcare services are unavailable, non-existent, or not published.
2. There is no crowd-sourced ratings system for hospitals (think yelp for hospitals).
3. Since everyone is insured no one cares about cost. This has resulted in higher prices.
4. The people have no power to control the quality or cost of the healthcare services.

These four problems ultimately result in a system that is too expensive, low quality, and where the people have no power to do anything about it.

Here are my proposed solutions:

1. Pricing for healthcare services are unavailable, non-existent, or not published.

Require all hospitals post itemized prices for their goods and services. Every procedure should have an itemized “menu” outlining what the procedure may cost. Since any given procedure is highly variable the menu should include “average cost”, “best case”, “most likely”, and “worst case” scenarios.

The menu should also include things like bandages, medication, and anything else a hospital could use to inadvertently pad the bill.  Great hospitals should even consider hiring a “budget specialist” who discusses costs and options with each patient.

These menus should be posted online and available before he procedure. This will allow individuals and insurance companies to shop around for a facility that meets the individuals’ need. This will also drive prices down since hospitals will be forced to compete based on price (or provide superior service to justify higher prices).

I would not eat at a restaurant that didn’t post prices so I should not have to receive healthcare services without prices either.

2. There is no crowd-sourced ratings system for hospitals (think yelp.com for hospitals).

There should be a crowd-sourced ratings system for hospitals. In my opinion this would have been a much better investment than healthcare.gov. When hospitals are forced to compete for business based on price and services the consumer benefits. Prices will ultimately fall and service will rise.

For example, in Atlanta there are several major hospitals in the metro area. For most procedures I have no idea what a service cost or who the best service provider may be. I usually just go to the closest major hospital. I imagine most people do the same thing.

A rating system would enable a consumer to quickly and easily search for a service provider based on thousands of consumer ratings. Ultimately a sick person cannot choose if they want to go to the hospital, but they can choose which hospital they visit. The power of consumer choice based on good information will ultimately force hospitals to compete.

3. Since everyone is insured no one cares about prices. This has resulted in higher prices.

The third major problem I see with the healthcare system are insurance companies.

Healthcare prices are so complex and expensive (for reason listed above) that no one can or wants to deal with it. We defer all responsibility to our insurers. Now, with the implementation of the Affordable Care Act (Obamacare) we have no choice anyways. Ultimately this leads to a system where no one cares about prices because they will be paying the same insurance premium regardless. But this is a false premise.

Because no one cares about prices and live under the illusion that their costs are the same there is no incentive to seek more cost effective solutions. People rarely look at their hospital bill and pay whatever the insurer requires. This ultimately leads to higher healthcare costs and higher healthcare insurance premiums.

Healthcare insurers should provide incentives (lower insurance premiums) to individuals who shop around for better prices and value. This would ultimately lower insurance prices and force hospitals to compete again.

4. The people have no power to control the quality or cost of the healthcare services they receive. 

The biggest problem with our healthcare system is that the people receiving the services have no power to control prices or the quality of service they receive. The appropriate infrastructure is not in place. All of the power resides with the insurance companies and healthcare providers.

Insurance companies operate as powerful unions who dictate what they will pay a hospital for a given good or service. Insurance companies have large staff who perform complex pricing studies so they understand what people are paying and how much a product SHOULD cost regardless what a hospital charges.

This results in hospitals charging several times market value for a given good or service because they fully expect the insurance company to pay only a small fraction of that amount. Meanwhile: the consumer is screwed, hospitals charge too much, and insurance companies reek most of the profits.

Obamacare:

Obamacare has only served to strengthen this broken system by further empowering insurance companies and disenfranchising the individual. Since EVERYONE is now forced to have healthcare insurance this eliminates any opportunity for individuals to negotiate or bargain for themselves.

Ultimately, we live in a system where the insurance companies dictate how much they will pay hospitals and how much they will charge consumers. Meanwhile, there has been no progress toward a system that promotes competition, dives prices down, or leads to better services.

Legalized Marijuana will Sweep the Nation!

I predict that pot will be more or less legal most everywhere in the very near future. Why? Because cash is king.

In January, the state of Colorado collected $2 million in recreational pot taxes and $1.5 million in medical marijuana taxes. What state can resist that cold hard cash? It is just waiting to be taken.

Do any of us really believe that marihuana being illegal is stopping anyone from getting high? Hell, I’m a law abiding, tax paying, white collar schmuck and even I know two people I could personally call up and get a dime bag from if I really cared to.

I predict that eventually, even the most socially conservative of states will give way, even if it is a medical marijuana cop out where they’re pretending to be hard on drug use, but still want to collect at least a few dimes from all those dime bag transactions!

2014-03-18 11_35_19-Colorado collects $2M in recreational pot taxes - Yahoo News

Need convincing? Look no further than Lynchburg, TN, home of Jack Daniels!  Lynchburge is a dry city. You can’t buy Jack Daniels in the town it is made. But Jack Daniels still produces barrel after barrel of whiskey and you can buy bottles of Jack Daniels from their overpriced gift shop!

Why? Because cash is king! Jack Daniels produced millions in tax revenue every year. Who can resist all that green?

Weed will be legal soon enough, if for no other reason than collecting a few more tax dollars.
http://news.yahoo.com/colorado-collects-2m-recreational-pot-taxes-212356027–finance.html

-Holden

Maybe its time for Government to raise Min Wage

Over on one of my favorite blogs, journalist Phil Ebersole has wrote extensively about minimum wage.  Here’s a few recent thoughts on the subject.

My gut tells me government shouldn’t meddle in wage or price fixing. Let the market sort it out. I also feel like opening the door to such a debate would only serve to hurt smaller businesses or worse, open some sort of economic Pandora’s Box. But then I was reminded of past lessons from my grad student days.

When I was in business school, we were taught that it is the nature of a business and even more importantly, its duty to its stakeholders to maximize value.  What the value is, is determined in the corporate mission statement and by the stakeholders themselves.

In the case of most corps, value is profit and stakeholders are those who own the stock/equity of the company, or further those who work for and rely on the company one way or another

In business school, I was also taught that is was pretty much the government’s job to play referee. It isn’t the business’ job to play good guy or make the call as to what serves the public good , but to maximize value for its stakeholders.

If this is what they teach in mainstream, MBA classes and this appears to be the prevailing attitude of big business, I say maybe government does need to be more involved as much as I hate to say it.

The issue of Minimum Wage seems little different than EPA or Anti-trust regulations at this point. If there is no oversight, abuse happens. The power of the common man has been decentralized, party through a poorer/evolving economic environment but also through the ineffectiveness, corruption  and increasingly unpopularity of labor unions. The average laborer has very little power in most cases and no sort of unified voice.

Now find ourselves in a bit of a David vs Goliath situation. And just like in the Biblical story, the only way David will ever have a snowball’s chance in hell of beating Goliath is thanks to intervention from a higher power.

-Holden

The military passes a financial audit for the first time

For the first time since 1990, when the Congress approved the Chief Financial Officers Act, which among other things, required all federal agencies and departments to produce what would be regarded as a clean financial statement on their budgets, a branch of the U.S. military passed a financial audit.

As reported by Jamie Dupree:

“It was the first time any branch of the military service had been given an “unqualified favorable audit” for being able to show where billions in funding had gone.

Let me repeat that – it was the first time that any part of the service had been able to fully account for where all of its money was spent.”

This begs the question: What are the consequences for committing fraud, failing audits, and abusing tax dollars? Apparently nothing. What is the point of an audit if there is no enforcement?

Morality: Questioning Land Ownership

I began to think about the concept of  land ownership after reading two separate books, whose authors probably would not agree on the subject. The first was the final  pamphlet  in a series of writings by Thomas Paine called “Agrarian Justice”. The second is from a book I read about a year ago by Ron Paul called “Liberty Defined“.

Both Ron Paul and Thomas Paine are known for their outspoken “pro-Liberty” stance so I was interested to see such a dynamic exist between their ideas about land ownership. It also caused me to examine my own thoughts on the subject.

1. Opposing Views: Thomas Paine and Ron Paul on Land Ownership

In context, it may be helpful to quickly describe the two men’s views on the morality and right of land ownership and then my own thoughts on the subject.

1a. Ron Paul on Land Ownership:

Ron Paul is a champion of the Austrian school of economic thought. He believes that private land ownership is a pivotal component to a successful economy, personal liberty, and natural rights.  Ron Paul is against public land ownership, especially ownership by the Federal Government, citing the misuse of public land in the abuses of eminent domain, lobbyist groups, and otherwise corrupt actions by Governments. On many of these points I agree.

“In a free society, the land is owned by the people, not the government…Total federal ownership is more than one third of the land mass of the fifty states. But that’s not the only problem…Taxation and regulations are so cumbersome that land owners are essentially renters with no right to the land…”

Ron Paul also hints and problems of facism and oligarchical control of land:

“Today’s corporations and private businesses ask local governments to condemn land in order to resell it to them. The promise is that the land value will go up, the business will pay more taxes, the municipality will benefit, and the new business will earn moremoney with its new, preferable location…This is a modern distortion and abuse of the principle of eminent domain.”

The part I do not believe Ron Paul addresses  is the potential for private land owners and corporations to own and hold giant portions of land into perpetuity. If it is every man’s natural right to own land how can we justify one man or single corporation to own it all – leaving nothing for some people. Isn’t then, the perpetual ownership of massive amounts of land inherently immoral and contrary to liberty?

Thomas Paine addresses some of these concerns.

1b. Thomas Paine on Land Ownership:

Thomas Paine believed that, in a civilized state, individuals are entitled to the fruits of their improvements to land. And since it is impossible to separate the improvements made to land and the land itself property ownership is a right. Paine did however draw a distinction between the land itself (which everyone is entitled to) and the cultivation and improvement of that land (which the laborer is entitled to):

“And as it is impossible to separate the improvement made by cultivation, from the earth itself, upon which that improvement is made, the idea of landed property arose from that inseparable connection; but it is nevertheless true, that it is the value of the improvement, only, and not the earth itself that is individual property. Every proprietor therefore of cultivated land owes the community a ground-rent for the land which he holds…

The additional value made by cultivation, after they system [of property ownership] was implemented, became the property of those who did it, or who inherited it from them, or who purchased it. It had originally no owner. Whilst, therefore, I advocate the right, and interest myself in the hard case of all those who have been thrown out of their natural inheritance by the introduction of the system of landed property, I equally defend the right of the possessor to the part which is his…”

Thomas Paine offers the following solution to bridge the gap between the rights of land owners (those who own land and cultivate it) and the rights of non-land owners (those who have a right to the ground itself, but cannot use it because it is occupied):

“To create a National Fund, out of which there shall be paid to every person, when arrived at the age of twenty-one years, the sum of Fifteen Pounds sterling, as a compensation in part, for the loss of his or her natural inheritance, by the introduction of the system of landed property. And also, The sum of Ten Pounds per annum, during life, to every person now living, of the age of fifty years, and to all others as they shall arrive at that age.”

Many people equate Thomas Paine’s solution with the modern day property tax and Social Security payments.

2. My Thoughts on the Morality of Land Ownership

The biggest problem I see with land ownership today is the perpetual ownership of mass amounts of land by the wealth elites, government, and corporations. This system usually means that large plots of valuable land and it’s resources are owned by the same family, company, or the Government for centuries.

I wonder: Is the process of perpetual and infinite land ownership acceptable in a free society or is it a modern form of royalty – where power and resources are passed down from generation to generation by a group of powerful elites?*

25 men control over 30 million acres of land (2%).
* The federal government owns more that 650 million acres of land (30%).

The New Silk Road- Chinese High Speed Rail to Europe!

Turn on the news and you’ll quickly notice that the same dozen or so stories tend to be circulated amongst the various major news outlets of America. You would assume that our freedom of speech and the proliferation of free data zipping round the world in mere seconds via the internet would result in the public being as educated as ever about… well, everything.  That doesn’t appear to be the case.

The reality is, the average person appears to be ‘not in the know’ more than ever, especially in terms of geo-politics. For example, ask the average American to point out Turkey on a map and you might find that only a little over half can identify it. That was the case with Iraq, when a National Geographic study performed a few years ago revealed that only 63% of participants could find the middle eastern country on a map, despite our long war with the embattled nation.

And speaking of Turkey… have you heard about their new $35 billion dollar joint project with China to build high speed rail across Asia and the Middle East? If you’re an American, probably not. Yet it probably means more to us than anyone.

China to Turkey Train

Look to Asia and you’ll notice that America has implanted itself everywhere in the region. We have a strong foothold in South Korea, Japan, the Philippines, Taiwan, and earlier this year Secretary of State Hilary Clinton and President Obama even visited Myanmar (Burma). Surely they weren’t there to enjoy the Buddhist temples or applaud the regime for its long history of upholding human rights were they? I doubt it.

China, and Asia in general is the world’s factory. American politicians love to bemoan the fact that China owns tons of our national debt and people everywhere joke that retailers like Walmart stock their shelves to the brim with Chinese produced products, but the fact of the matter is, we rely on cheap products from China and Asia to allow us to afford our ridiculously luxurious lives at such a cheap price. Hence, the main reason we’ve injected our influence in Asia everywhere we can get a foothold.

But wait, there’s more! Once the line from China to Turkey is complete, the Chinese next plan to complete a line to Spain and another to England as well, with the project being valued at $80 billion total. This would give Europe fast access to the markets of Asia, and China a new place to dump their goods and services at their insanely cheap prices. Think of all that freight coming straight in on high speed rail.

What are the Implications for the United States?

I think what the railway means to the USA is, we get cut out of a lot more deals. We start losing footholds. Maybe it will be good for us in the long run, forcing us to be more competitive in new ways. Who knows, But in the short run, it might shake up markets at the least.

I believe the real implications actually lie a bit deeper below the surface. For example, as part of the new rail deal with China, Turkey is kicking off a slew of new public works projects, including construction of two new power plants. The loans and construction contracts to complete those projects will most definitely come from China.

This is where the real money is to be made and historically this has been our speciality- go into a country, promote economic development, extend loans and foreign aid to these developing nations under the guise of “Nation Building and Breeding American Style Capitalism and Democracy” then stipulate that the work be done by US firms, essentially feeding the cash pumped into the developing nation right back into our coffers.

Are China’s economic hit men suddenly getting a one up on ours? Are they perhaps, starting to beat us at our own game? Only time will tell.

Read the article here: http://www.todayszaman.com/news-277360-turkey-china-mull-35-bln-joint-high-speed-railway-project.html

-Holden

Is $15 a fair minimum wage?

This morning in Atlanta, GA fast food workers are going on strike in an effort to demand a higher minimum wage of $15 per hour. That is $31,500 a year for a full time fast food employee (not including benefits).

As matter of practice I believe it is good policy for any given employer to treat their employees with a certain amount of dignity and respect – including paying their employees a fair wage. I believe this not just on moral grounds, but also as a matter of doing good business and competing in the marketplace.

For example, companies like McDonalds and Wal-Mart are notorious for treating and paying their long-time employees poorly. In response this has directly affected the quality of their businesses (no one shops at Wal-Mart or McDonald’s for the ambiance) and, perhaps more importantly, degrades their reputation with the consumer. In the long run this is just bad business.

Bad business doesn’t mean that the Government should necessarily litigate their business practices though. Bad business decisions for one company presents a new opportunity for another company (thus opening up new opportunities for employees as well). For example, companies like Costco and Chick-fil-a have decided to pay employees better and implement a different sort of culture. Ultimately, this has lead to better quality services, higher profits, and happier employees – all without Government intervention.

Problems with an artificially high minimum wage:

While the idea of every worker, regardless of their job title, earning over $30,000 per year may sound like a good idea to some people – it is important to point out that there are many unforeseen consequences.

1. It disrupts small business’s ability to compete.

Mandating an artificially high minimum wage (especially one as high as $15/hr) makes it very difficult for businesses to compete in the market place.

For example, let’s say that a local retail boutique (The Little Apple Boutique) offer’s high wages in an effort to draw in the best employees. They need these employees because part of their business model is to offer superior customer service in exchange for moderately higher prices for their goods. Their profit margins are low because the cost of paying their employees and running the business is high, but this is the niche that they have carved out for their business and it’s working.

When an artificial minimum wage is introduced this destroys The Little Apple Boutique’s ability to execute their business plan. They can no longer attract the best employees because every other business in the area is offering the same wage. The Little Apple Boutique can’t afford to raise their wages any higher and stay in business.  Six months later customers begin to complain that The Little Apple Boutique’s customer service isn’t what is used to be. Twelve months later The Little Apple Boutique is out of business.

2. High minimum wage closes the gap between the poor and the middle class, but not between the 1% and 99%.

In general, people are very aware (and concerned) about wealth inequality in America. There is a constantly growing gap between the super-rich and everyone else. But rather than addressing that inequality gap an artificially high minimum wage could serve to expand it.

US Wealth Distribution

2a. High minimum wages hurt small businesses and but do not affect big corporations

Most of the poor and middle class people in America shop at the same places. (We all shop at places like Wal-Mart, Target, Publix, McDonald’s, etc.) The places that we can afford to shop, in general, employee a large number of employees at or slightly above the current minimum wage.

Higher minimum wage (especially $15/hr) will ultimately drive prices up at places where the poor and middle class shop. Overall this means that the middle class will be poorer (assuming they already made above minimum wage, but now have higher prices) and only serve the poor marginally (assuming the poor now make $15/hr, but now have to pay higher prices).

The one class that the higher minimum wage does not affect is the rich. Moderately higher prices do not affect their lifestyle and they probably don’t shop at McDonalds or Wal-Mart anyways.

2b. Higher minimum wages hurt middle class small businesses, not rich corporations, ultimately helping the rich corporations.

On the surface, this seems like a battle waged against big and evil corporations. The type of corporations that treat their employees like trash and serve us mediocre food. We see this as a battle for the poor and against companies like Wal-Mart and McDonald’s. This is not the truth.

Ultimately, this is a fight against the middle class and an apathetic super-rich. If the people successfully lobby the Government to pass an artificially high minimum wage (specifically one as high as $15/hr) it will hurt small, middle class business – not the evil corporations.

In the long run companies like McDonalds and Wal-Mart will survive the minimum wage hikes. They will pass the expense on to their customers, to their suppliers of beef and paper products (who are probably small/medium sized businesses) and keep the profits for themselves. In fact, the poor (who shop at Wal-Mart) will keep shopping there, but since they make more money they will spend more. Ultimately giving Wal-Mart even more profits. Ironic.

The companies that will ultimately go out of business are the ones that ultimately treat their employees with respect in the first place. Small businesses like The Little Apple Boutique, Local Farmers, and Diners will go out of business. And in the end we will all keep shopping at Wal-Mart, but this time paying higher prices for the same bad service we’ve always had.

3. Outsourcing and the Value of low skilled labor

In the labor market of individuals who are paid less than $15/hr there are basically two classes: 1. low-skilled manual labor (cashier, hamburger cook) and 2. skilled-labor that doesn’t demand much money (tech support). I want to discuss how a higher minimum wage will affect each of these two classes.

3a. Does the low-skill labor demand $15/hr?

When people think about those people who are unfairly treated by their employers (and who deserve a higher wage) they often imagine the poor mother with two kids who cannot make ends meet. She gives life everything she has, but can’t make it. It is unfair.

This is a action-provoking idea, but it does not reflect the situation of the majority of minimum wage workers. Rather it serves as an artificial “poster child” used by lobbying groups to evoke emotion from the masses.

The truth is that over half of minimum wage workers are young people (probably in school and still gaining skills) not bread-winners. A research by the Pew Research Center shows that 50.6% are ages 16 to 24; 24% are teenagers (ages 16 to 19).

This begs the question: Do 16 year old teenagers and college students really need (or do their skills demand) $15/hr? I don’t think so and I do not think an artificially high minimum wage is an appropriate way to address the rare case of a struggling mother. There are numerous, more efficient, way to manage such cases.

3b. Skill-Labor: Outsourced jobs that could be in America:

The problem with most skilled-labor jobs that pay less than $15/hr is that they are easily outsourced to countries that do not have minimum wage standards or the job is subject to being automated.

The average outsourced job in India pays $13.46/hr ($28,000/yr). That is over $1.50 less than the proposed minimum wage of $15/hr. This means that all jobs that can be outsourced will be outsourced (or automated). 

The other idea to consider is that companies are smart. We already see retail stores replacing cashiers with automated machines. Would it seem strange to think that our food may be cooked by robots in the near future? I don’t.

In the future a $15/hr job might mean no job at all for many Americans. Food for thought.