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Hey Overpriced Minimum Wage Workers, Your Robot Replacement Has Already Been Hired

I have seen the future, and it’s a tablet computer that does not want to be paid $15 an hour.

Los Angeles is the latest municipality where politicians are considering buying votes by mandating a $15 per hour minimum wage. That’s actually a ban on workers taking jobs for $12 or $14 per hour, but it sounds compassionate when reduced to slogans and finger-wagging at “greedy”businesses. New York is poised to implement $15 per hour as the minimum wage for fast food workers state-wide. And Vice President Joe Biden is among the pols calling for a federal minimum wage hike–to $12 per hour, in his case (not that he himself is worth that much).

But you know what? Businesses are way ahead of them.

I took my son to Chili’s for lunch today. On the table was one of the 45,000 Ziosk tablets (it may be more by now) the company had in place over a year ago. The widgets let you order drinks and desserts and pay your bill without flagging down a server. They also offer some entertainment options. Chili’s swears up and down that no server jobs are at risk because “we’d never want to lose our awesome Team Members,” But I bet Chili’s doesn’t want to lose money, either, and it would risk that if labor costs go through the roof. The device is obviously one software upgrade away from letting customers order everything electronically, which could potentially reduce server needs to one or two backups for the old-school customers who don’t want to use a touchscreen.

So…What do you think is going to happen if the move for a massively boosted minimum wage goes nationwide?

I'm guessing that tipping the terminal will not be a thing.

I’m guessing that tipping the terminal will not be a thing.

Unshockingly, a report released today says that lots of jobs are on the chopping block if the government tries to create prosperity out of thin air by hiking the minimum wage. The report, by Douglas Holtz-Eakin, president of the American Action Forum and former director of the Congressional Budget Office, and Ben Gitis, director of labor-market policy at the American Action Forum, says that “increasing the federal minimum wage to $15 per hour by 2020 would affect 55.1 million workers and cost 6.6 million jobs.”

A lower hike would be “better” in the sense of doing less damage. Boosting the minimum to $12 per hour “would cost 3.8 million low-wage jobs.” Which sucks less. Under either scenario, only a tiny percentage of gains would be enjoyed by those in poverty–at the expense of jobs and paychecks.

Business owners are neither stupid nor suicidal. They listen to the political rhetoric coming out of demagogues’ mouths and they make contingency plans for surviving the policy flingings of the simians we elect to office. Those Ziosks on the table aren’t just gee-whiz toys;they’re hedges against the future.

In San Francisco, where the $15 minimum wage is already law, innovative startup Momentum Machines has a plan to completely mechanize fast-food restaurants from the kitchen to the table. The company notes, “An average quick service restaurant spends $135K every year on labor for the production of hamburgers. Not only does our machine eliminate nearly all of that cost, it also obviates the associated management headaches.”

But the headaches for unskilled workers trying to get a foothold in the job market are just beginning.

Discourage Vice and Reap Bonanzas With High Taxes! What Could Go Wrong?

Oh. And sex. They'll have to think of a way to tax sex.

Photo by defekto / Foter / CC BY-NC

What could make more sense than discouraging weak-minded sinners from the path of wrongfulness (or whatever the fuck the word is) by loading high tariffs on smokes, booze, sodas or whatever might rub today’s bien pensant crew the wrong way while they’re tut-tutting over the failures of lesser creatures? Why, it’s a no-brainer! And you could close government budgetary gaps with the moolah pouring in from the proceeds of those high taxes, too.

Forget that there’s a bit of a disconnect between simultaneously using taxes as proxies for prohibition and revenue raising. Well…No. Don’t forget that. And don’t forget that people have always been a tad resistant to actual prohibition efforts,and the historical record shows similar pitfalls for sin taxes.

Anyway, that’s the gist of my new piece for Reason. Pour a tall glass and light a smoke while you read “It’s Time We Learned from Sin Taxes’ Impressive History of Failure.”

Could Europe end up more free-market than the U.S.?

The United States has its problems, but at least we can make a living here more easily, without going hat in hand to a bureaucrat and begging “mother may I,” than our cousins across the pond, right? Well … by and large, that has been the case over the course of our history. But the fact that something was true in the past is no guarantee that it will remain so in the future. The U.S. government, under the mis-rule of both major parties, has tried over the past decade(s) to spend the country into somebody’s disturbing fever-dream of a rule-bound “paradise.” Those efforts continue even as Europeans reach the end of that same dodgy path and discover that, with bank accounts barren and populations too smothered in red tape to fill them up again, they may have to free up their economies out of pure necessity.

There may be no more convincing evidence that the finances of the Greek government are a shambles than the insistent claims of the German chancellor (whose government constitutes Europe’s financial fire brigade) that the Greek books aren’t so bad after all — and so members of her own government should shut up already.

This comes as Italy’s latest attempt to borrow yet more money to pay its bills met with a less-than-enthusiastic response, leaving the already-strapped European Central Bank as pretty much the only serious customer. That is, unless China decides to unload some of that cash surplus on a risky investment in the Mediterranean.

And Ireland is under heavy pressure to address its own cash-strappedness by paring the welfare state and trimming compensation for government workers — advice being implemented elsewhere, amidst much wailing and gnashing of teeth.

All over Europe, governments are running out of money, and have all put the touch one time too many on flusher neighbors who no longer have much to spare for their domestic concerns, let alone to bail out spendthrifts across the border. Much of the speculation by observers watching Europe’s financial troubles is over whether or not the multi-nation euro currency can survive, but does it really matter whether the shrunken European governments of the future pay their reduced bills with the euro, or with revived versions of the drachma and the lira?

“Shrunken,” I say, because it’s pretty clear that European governments in the foreseeable future will spend less money, provide fewer services and intervene less in private economic matters. Governments from Dublin to Athens are cutting back on generous social programs, paying bureaucrats less than in the past, privatizing businesses and deregulating some important aspects of their economies. Ireland has reduced its minimum wage, Greece has eased the process of hiring and firing workers and other countries are doing much of the same — haltingly, it’s true. Taxes are rising in the process, unfortunately, but that may do limited damage among populations accustomed to treating tax rates as little more than suggested contributions, especially if markets really do enjoy reduced regulation.

And all of this as the United States moves closer to very-expensive welfare-state status with the imposition of the Patient Protection and Affordable Care Act. And, while the Obama administration has backed off a bit on EPA regulations, and has ordered federal agencies to review regulations to make sure they’re not too burdensome, the White House has also engaged in high-profile enforcement of red-tape, including an armed raid, against companies such as Boeing and Gibson Guitars.

I can see a time not far in the future when Europeans, climbing their way back to prosperity, engage in their traditional entertainment of heaping scorn upon Americans — but now for clinging to outmoded statist economic policies and bloated government institutions. If it happens, it will be an historic turn-about — though not completely unprecedented.

Hmmm … It might be time to polish up your language skills. For what it’s worth, Spanish and Italian are pretty easy to pick up.

Maybe the New Deal was a class war after all

In the piece of Arizona in which I live, there’s a distinct social divide between locally sourced business people and professionals, and those from elsewhere. While everybody mixes at community events and in the professional setting, on their own time, the locals go one way and the imports go another.

It’s not an economic divide — asset-wise, one tribe or the other may have the advantage, but that’s clearly not where the border lies. In fact, there’s a range of incomes on either side; the real common denominator — and source of the division — is culture. In broad terms, one group spends its cash on ATVs, steak and beer, and the other on mountain bikes, hummus and wine. Things are a bit fuzzier than that, of course, but it’s enough to make for two largely detached social networks.

This is on my mind because I’m currently reading Paul Fussell’s much-referenced and very biting Class: A guide through the American status system. Published originally in the early 1980s, the book may be dated a bit in some specific details, but it recalls to me (shudder) my high school years in WASPy Greenwich, Connecticut, and reminds me that economic divides and social divides are not the same thing. One of the great glories of the United States is that wealth really is within the reach of just about anybody with brains and drive — but social barriers are a hell of a lot harder to overcome. Despite his billions, Bill Gates will always be an upper middle-class guy — never mind that he could buy and sell whatever is left of the Roosevelts.

Of course, if sufficiently secure in his own skin, he need not give a shit about that social divide either — which is freedom in itself.

But, speaking of the Roosevelts, this long and somewhat strange introduction is my labored way of working around to an observation that occurred to me some time ago while I was reading Amity Shlaes’s Forgotten Man, about the Great Depression. It’s often remarked that Franklin Delano Roosevelt was a “traitor to his class” — that his authoritarianism, corporatist economics and populist bloviating separated him from his natural allies and championed the little guy.

Except … That’s not true, is it?

FDR was fond of bashing “money changers” and plutocrats, and of challenging major figures in business and industry — which is indicative, since he himself was engaged in … nothing. Nothing, that is, aside from politics. Really, his official White House biography speaks of college, law school and political office. Other biographies refer to a brief legal clerkship. But really, his family had lived off of inherited money for generations, and he didn’t have to work at anything that didn’t interest him. The man was a landed aristocrat.

And what about his opponents?

Many of FDR’s opponents may have been wealthier than him, but they also worked at it in ways that the idle social elite have traditionally considered vulgar. Take Andrew Mellon, for example. Widely derided as a shadowy and powerful figure — “three presidents served under him” — Mellon was the son of a Scots-Irish immigrant who started off working in lumber and coal and later went into banking. Yes, he grew immensely rich and powerful, but he worked. By Roosevelt’s standards, Mellon was a social inferior.

In fact, the same could be said about all of those “plutocrats” whose businesses were affected, to one extent or another, by the New Deal. The simple fact that they engaged in commerce beyond managing an ancient estate would have made them a bit … icky … to the likes of FDR and the old elite.

As Fussell writes in Class, “[A]s a class indicator, the amount of money is less significant than the source. The main thing distinguishing the top three classes from each other is the amount of money inherited in relation to the amount currently earned. The top out-of-sight-class … lives on inherited capital entirely.”

By the standard set by Fussell (a liberal Democrat, by the way, who contrasts Ronald Reagan’s “Midwestern small-town meanness” with “Roosevelt’s politics of aristocratic magnanimity”), the likes of Mellon and Henry Ford (another son of an immigrant), who actually worked for the majority of their wealth, would have been one or two social classes below FDR, despite their vast assets.

It’s interesting … Transfer the same cast of characters to, say, fifteenth-century Flanders (not that I’m an expert) and grad students would be cranking out papers about the exploitation of the peasantry as a weapon by the landed aristocracy against the newly empowered merchant class, but clear judgment goes out the window when the scion of a long-established elite New York family takes advantage of an economic down-turn to stir up struggling Americans against newly risen business owners who are overshadowing his social set in the United States of the 1930s.

I’ve long since come to realize that I rarely have original ideas, so I’ll assume that this insight has been covered, to much greater depth, elsewhere. Please feel free to drop me a note telling me what I’ve overlooked, since the subject intrigues me.

Hayek schools Keynes on recession economics

Remember that rap video in which F.A. Hayek and John Maynard Keynes faced off over their economic philosophies? Well, they’re at it again — and this time it’s over the causes and cures of recessions. Yes, it’s good, well-produced and worth sharing.

Did we really have to wait until rap music to find a way to make economics fun and understandable?

Modern-day ‘capital strike’ becomes more likely

Pundits have been speculating for months that the United States is undergoing a “capital strike” of the sort that occurred during the Great Depression — that is, frightened and confused by government policies and the (often contradictory) directions in which they tug the economy, investors are sitting on their money rather than putting it into new and existing ventures that might generate jobs and prosperity. That speculation appears to be firming up into reality, as new reports indicate both disenchantment with the Big O among his well-heeled backers and (likely related) widespread unwillingness to invest in the U.S. economy.

Amity Shlaes, author of The Forgotten Man, described the earlier version of the phenomenon in a 2009 column:

“Fat cats” is what President Barack Obama just called bankers. He also invited them to the White House this past week.

The reason for the mixed message is that the president is cross with banks: They have refused to heed his orders to lend. The dynamic of preachy executive and elusive lenders recalls the mid-1930s, when a petulant Franklin Roosevelt gave a label to banks’ puzzling behavior: “capital strike.” …

Observing that banks maintained what had once been considered ample reserves, 1930s monetary authorities reasoned that increasing reserve requirements on paper would have little effect: Their increase was merely a de facto recognition of an accumulation that had already occurred.

The authorities forgot these bankers had been burned. The wary banks reacted by stashing away yet more cash. The result was an unforeseen tightening and less cash in the economy.

Election cycles also contribute to capital strikes. Banks today know that whatever the White House says, it has to stop pouring out the cash eventually, probably after midterms. Banks in the 1930s held on to cash because they knew Roosevelt would stop spending after the 1936 election, and he did.

House winnings

High taxes, or the prospect of tax increases, do damage as well. In 1937, a tire company executive explained the effect of Roosevelt’s confiscatory rates upon the investor: “He will not risk financing new ventures if the government take is greater than that of the average gambling house.”

Infantilizing the private sector also makes it shut down. In the 1930s, Roosevelt, like Obama, alternated between coddling banks and companies and giving them the equivalent of a good spanking. Both can be counterproductive. The editors of Time magazine formally recognized that by printing a regular rubric over its weekly reports: “Last week the U.S. Government did the following for and to U.S. Business …”

Writing in The Freeman, historian Burton Folsom, Jr. further draws out some of the parallels between then and now:

The sequence of massive federal spending followed by a lack of recovery plus tax hikes is poison for a politician. Therefore Roosevelt sought scapegoats to explain his failure. Wall Street bankers were his favorites. He called them “economic royalists” and blamed them for causing the Great Depression. He also blamed America’s top businessmen for instigating a “capital strike”—they were refusing to invest in order to make him look bad. FDR then launched IRS investigations of key Republicans and used the newspapers to encourage hostility toward these targets.

Obama has followed FDR’s playbook of attacking Wall Street bankers and various corporate leaders. He condemns the raises these bankers sometimes receive and the profits earned by some large oil companies and health insurance companies.

In June, on ABC News, George Will raised the possibility that Obama is reaping the same results as FDR, saying:

The Bush tax cuts are going to expire. Interest rates have to go up sooner or later. The House, just before going on recess, passed a so-called jobs bill with $80 billion more dollars of taxes in it. There may be climate change regulation. No one knows quite how Obama Care is going to effect the private sector. In pandemic uncertainty, capital goes on strike.

But, so far, this has largely been speculation. Have the Wall Street types who heavily supported Barack Obama’s presidential run turned against him? And are investors really stashing their cash rather than risk it in an environment of anti-business hostility and economic uncertainty?

The Magic Eight Ball now seems to suggest the answer is: You better believe it!

The New York Times reports on the u-turn a major Wall Street backer of Obama has made in his opinion of the president and his policies:

Daniel S. Loeb, the hedge fund manager, was one of Barack Obama’s biggest backers in the 2008 presidential campaign.

A registered Democrat, Mr. Loeb has given and raised hundreds of thousands of dollars for Democrats. Less than a year ago, he was considered to be among the Wall Street elite still close enough to the White House to be invited to a speech in Lower Manhattan, where President Obama outlined the need for a financial regulatory overhaul.

So it came as quite a surprise on Friday, when Mr. Loeb sent a letter to his investors that sounded as if he were preparing to join Glenn Beck in Washington over the weekend.

“As every student of American history knows, this country’s core founding principles included nonpunitive taxation, constitutionally guaranteed protections against persecution of the minority and an inexorable right of self-determination,” he wrote. “Washington has taken actions over the past months, like the Goldman suit that seem designed to fracture the populace by pulling capital and power from the hands of some and putting it in the hands of others.”

This is important, even the Times concedes, because:

Mr. Loeb’s views, irrespective of their validity, point to a bigger problem for the economy: If business leaders have a such a distrust of government, they won’t invest in the country. And perception is becoming reality.

Just last week, Paul S. Otellini, chief executive of Intel, said at a dinner at the Aspen Forum of the Technology Policy Institute that “the next big thing will not be invented here. Jobs will not be created here.”

Mr. Otellini has overseen two big acquisitions in the last two weeks — the $7.7 billion takeover of the security software maker McAfee and the $1.4 billion deal for the wireless chip unit of Infineon Technologies. If he is true to his word, those deals will most likely lead to job cuts in the United States, not job creation.

And it’s not just one ticked-off hedge-fund manager and a disgruntled tech executive — it seems to be oodles of investors preferring to keep cash under the mattress rather than throw it into whatever the economy and the unpredictable folks tinkering with its controls may bring their way. Business Week interviewed Professor John Paglia of the Pepperdine Private Capital Markets Project about his latest semi-annual report. Paglia tole the magazine that, despite high demand for investment among small businesses, and increased credit-worthiness, “there’s a dearth of capital opportunities for the upstart businesses that potentially—down the road—could lead us to economic prosperity.” Banks, venture capitalists and angel investors are declining to make loans to such an extent that “[t]he No. 1 concern for private companies is access to capital. Nearly 31 percent cited that, even more than the 27 percent that said the economy is their top concern.”

Earlier this year, the Pepperdine Private Capital Markets Project reported that almost half of venture capitalist plan to sit on their cash, despite growing demand for investment, at least over the next year. Said Paglia: “The long-road out of the current recession and tepid marketplace has made it easier to simply keep money locked up.”

The Pepperdine data suggests that the “capital strike,” such as it is, is a reaction to economic uncertainty, rather than a refusal to make money and generate prosperity just to spite the administration (as FDR used to charge). Of course, the Times piece makes it clear that much of that uncertainty can be laid at the feet of the government, so the end result is the same.

When the regulator is also a competitor

Two weeks ago, the Wall Street Journal reported that U.S. government analysis of black box data from Toyota cars revealed that the “sudden acceleration” problem so widely reported in the media was actually a problem with drivers who couldn’t tell their left from their right and stomped the accelerator instead of the brake. If true, that would support claims made by the demonized auto maker based on its internal investigation.

But there’s no official Department of Transportation report to that effect — the Journal story is based on leaked information which has been denied by some government apparatchiks.

Now a recently retired National Highway Traffic Safety Administration official says that’s no accident — the government is sitting on the inconvenient data.

Senior officials at the U.S. Department of Transportation have at least temporarily blocked the release of findings by auto-safety regulators that could favor Toyota Motor Corp. in some crashes related to unintended acceleration, according to a recently retired agency official.

George Person, who retired July 3 after 27 years at the National Highway Traffic Safety Administration, said in an interview that the decision to not go public with the data for now was made over the objections of some officials at NHTSA.

“The information was compiled. The report was finished and submitted,” Mr. Person said. “When I asked why it hadn’t been published, I was told that the secretary’s office didn’t want to release it,” he added, referring to Transportation Secretary Ray LaHood.

How can I say the data is “inconvenient”? Mr. Person thinks the NHTSA might be concerned about looking too cozy with a car maker — a relationship of which it  has been accused in the past. But there might be another reason. Remember … the federal government is now in the automobile business as a direct competitor with Toyota through General Motors, and heavily invested in the reorganization of Chrysler, another rival to the Japanese car maker. Any data that might exonerate a company of manufacturing defects would obviously be inconvenient for its competitors.

Basically, it’s a lot like letting McDonald’s preside over the regulation of Burger King, including assessments of the safety of the competing brand’s products.

The thing is … No matter how definitive or tentative the DOT data ultimately turns out to be, how is the federal government’s relationship with the auto industry anything other than highly suspicious and open to gaming?

Senior officials at the U.S. Department of Transportation have at least temporarily blocked the release of findings by auto-safety regulators that could favor Toyota Motor Corp. in some crashes related to unintended acceleration, according to a recently retired agency official.

George Person, who retired July 3 after 27 years at the National Highway Traffic Safety Administration, said in an interview that the decision to not go public with the data for now was made over the objections of some officials at NHTSA.

“The information was compiled. The report was finished and submitted,” Mr. Person said. “When I asked why it hadn’t been published, I was told that the secretary’s office didn’t want to release it,” he added, referring to Transportation Secretary Ray LaHood.