The theory behind the minimum wage is simple; to make sure that everyone with a job makes at least enough to get by. It is the right thing to do, right? Everyone needs a livable wage, right? Sure, but only if they earn it, right?
Basic Economics: A product’s price is determined by the market, not the cost to make it. The profit a company makes on the product is determined by the difference between the price the market allows and the cost to make it. A company must make a certain profit on every product or it makes no sense to make it.
Competition increases the supply of products. This lowers the market price. Lower prices squeeze profits. Lowering costs is a requirement to maintain profitability. This applies equally to services.
Labor is a cost: Each product has a finite allowable labor cost to remain profitable. The minimum wage, by definition, is a wage paid to the workers at the very bottom who would be paid less if the market were allowed to operate. The employer is forced by law to overpay these workers.
Artificial Overpayment Hurts the BEST Workers Most: If you artificially force overpayment of the lowest value employees, this money must come from somewhere else. Where?
It must come from the wages and salaries of those who are pulling their weight. It comes from the hard working middle class people.
Your company makes a product. Buyers will pay you $120 per unit for it. At $121 you cannot sell any because they can get a competitor’s model for less. Your overhead accounts for $15. You need to make $5 profit or it is not worth making at all. $120 - $15 - $5 = $100.
So, you have $100 to build your product. $20 goes to component parts, energy usage, etc. $80 is left to pay workers.
Worker A is on time every day, works all day and churns out top notch product. Worker B is on time every day, works pretty hard, and churns out good work, but not as good as Worker A. Who is more valuable to YOUR company? Who would you pay more? Worker A, of course.
You also employ Worker C. He is late rather often, does menial labor and does not aspire to do anything more to help drive the company’s business. He is clearly worth the least, but you need someone to do this work. Unemployment is low for those willing to do this work and he is better than the drug addict you had doing this work last year, so you keep him around.
Worker A’s hard work should be worth $40 and at that wage she drives $43 in value. Worker B’s good work should be worth $30 and at that wage he drives $32 in value. Worker C’s shoddy menial work should be worth $10 and drives $10 in value. $40 + $30 + $10 = $80 and this maximizes everyone’s pay versus the budget dictated by the market and provides the required $5 minimum profit required to continue to make the product in this plant.
Ahh, but there is a minimum wage, so you have to pay Worker C $15; $5 more than he is worth. That means that you can only pay Worker A $37.50 and worker B $27.50, or reduce benefits or outsource the entire process to a foreign country and fire all three workers. You cannot afford to overpay your workforce or the required profit will be lost.
Who paid worker C the extra $5 required by the minimum wage? The government? The company?
NO, Worker A and Worker B pay him or they lose their jobs entirely!
So, to artificially help out the lazy disinterested Worker C, we take money from hard working Workers A and B so that they have a more difficult time feeding their families and paying their mortgages.
Does this make any sense?
How should wages be determined? By each person’s value to the company. That way Worker C is incented by the fine example set by Worker A to improve his lot in life.
But, you argue, the minimum wage is so little. How can it matter that much? Well if you are OK with giving part of your wages to that guy in your place of business who makes minimum wage, and you know who that is, then please share away, but it should be your decision. It should not be forced on the guy next to you.
But isn’t it true that few actually make minimum wage anyway? Certainly, most workers are worth what they are paid plus their contribution to the overpayment of the few that make minimum wage. Is that OK with them? Ask their spouses and children?
But people can barely live on minimum wage. How can you pay them less? People can barely get by working really hard and showing up on time and earning their living. How can you take money from them involuntarily and give it to others who do not care so much?
But, let’s have management make less and use that to pay the minimum wages. Sure, or they can be paid what they are worth and move the whole operation to India and everyone loses his or her job.
Reconsidering the minimum wage is just one step in making the US more competitive in the world markets.
Tuesday, December 30, 2008
Wednesday, December 17, 2008
One Quarter Percent – Has the Fed Learned Nothing?!!
Earlier this year I showed how this entire credit crisis is the fault of the Federal Reserve due to their completely inept handling of interest rates as we came out of the last recession. See http://themoderatevoice.com/22860/guest-voice-the-federal-%e2%80%9canything-but%e2%80%9d-reserved-911-terrorists-strike-again/ . Now they are doing it again. How can we let them?
Major Screw-Up Number One: In summary, in response to the last recession, the Fed lowered the Fed Funds Rate, which drives or influences all interest rates world wide, including LIBOR. This rate had not been below 3% for 40 years, yet the Fed lowered the rate from 6% in January 2001 to 1.75% in December and 1% in June, 2003. It was below 3% for 3 years and 8 months and at 1% for a year, both absolutely unprecedented.
Free money spurred out-of-control mortgage lending, which dramaticly increased home demand, which increased home prices, which further increased mortgage lending and of course home building. It also revved up the bundling and selling of mortgage backed securities and spurred the creation of synthetic CDOs and the like. Subprime, Alt A, Auction Rate Securities, CDOs and all that existed prior to 2001. This action by the Fed just put all of this on steroids and unleashed the inherent creative survival-of-the-fittest greed alive and predictable in all people.
Major Screw-Up Number Two: Then, they REAALLLYY screwed this up. The Fed raised the Fed Funds Rate by 4.25% in 2 years. The last time rates were this low the Fed took 8 years to raise rates by this much. The rapid increase in rates ruined fragile home mortgages throwing them into foreclosure, ruining home demand, causing home prices to fall, lending to dry up, mortgage companies to fail and fire people, lenders to fail and fire people, insurers to fail and fire people and home builders to fail and fire people. Higher unemployment leads to less spending and that kills the whole economy.
So what is the NEW answer to the current recession they caused, do the same thing as last time.
Lower interest rates to a new record low.
What to do Now?
It is too late. This has already happened. Since it has, what is the next right thing to do?
Announce right now that rates will begin to rise, one quarter percent every 4 months until rates hit 5.25%. This is about the average Fed Funds Rate over time. First raise will be April, then August, then December, like clockwork for 6 years and 8 months.
Lenders and borrowers will have certainty. Borrow now or the rates will go up in April. Everyone can plan. Lenders can make loans that predict future known increases in rates.
Why are interest rates shrouded in mystery? Who does that help? It provides the Fed with some kind of secret power over the economy that they hate to relinquish.
I suggest that if the Fed will not do this itself, then Congress should take this power from them and do it legislatively. The Fed screwed this up once. We cannot afford for them to do it again. Good luck America.
Major Screw-Up Number One: In summary, in response to the last recession, the Fed lowered the Fed Funds Rate, which drives or influences all interest rates world wide, including LIBOR. This rate had not been below 3% for 40 years, yet the Fed lowered the rate from 6% in January 2001 to 1.75% in December and 1% in June, 2003. It was below 3% for 3 years and 8 months and at 1% for a year, both absolutely unprecedented.
Free money spurred out-of-control mortgage lending, which dramaticly increased home demand, which increased home prices, which further increased mortgage lending and of course home building. It also revved up the bundling and selling of mortgage backed securities and spurred the creation of synthetic CDOs and the like. Subprime, Alt A, Auction Rate Securities, CDOs and all that existed prior to 2001. This action by the Fed just put all of this on steroids and unleashed the inherent creative survival-of-the-fittest greed alive and predictable in all people.
Major Screw-Up Number Two: Then, they REAALLLYY screwed this up. The Fed raised the Fed Funds Rate by 4.25% in 2 years. The last time rates were this low the Fed took 8 years to raise rates by this much. The rapid increase in rates ruined fragile home mortgages throwing them into foreclosure, ruining home demand, causing home prices to fall, lending to dry up, mortgage companies to fail and fire people, lenders to fail and fire people, insurers to fail and fire people and home builders to fail and fire people. Higher unemployment leads to less spending and that kills the whole economy.
So what is the NEW answer to the current recession they caused, do the same thing as last time.
Lower interest rates to a new record low.
What to do Now?
It is too late. This has already happened. Since it has, what is the next right thing to do?
Announce right now that rates will begin to rise, one quarter percent every 4 months until rates hit 5.25%. This is about the average Fed Funds Rate over time. First raise will be April, then August, then December, like clockwork for 6 years and 8 months.
Lenders and borrowers will have certainty. Borrow now or the rates will go up in April. Everyone can plan. Lenders can make loans that predict future known increases in rates.
Why are interest rates shrouded in mystery? Who does that help? It provides the Fed with some kind of secret power over the economy that they hate to relinquish.
I suggest that if the Fed will not do this itself, then Congress should take this power from them and do it legislatively. The Fed screwed this up once. We cannot afford for them to do it again. Good luck America.
Tuesday, December 16, 2008
Save the Economy - Save the Immigrants
Throughout time immigrants have driven the growth and prosperity of this country. The concept of illegal immigrants is a relatively recent one. The idea that we should keep out those who don’t look like us, however, is an age-old effort. Whether we like it or not, immigrants are critical to the future of the US economy. There is a simple way to solve this problem. Make them join a union.
Who comes to the US? Immigrants are people with the guts to leave their families, cultures and traditions to venture into a new land in search of a way to improve themselves. They are tough, clever and self-sufficient.
Most people fear the risks and stay home, no matter the desperation of their native situation. Immigrants bear these great burdens and still send most of their often meager wages home. Immigrants are truly special people. This has always been what defines Americans. This applies to Mexican immigrants as completely it has to all other nationalities.
A Bit of History: As always, we should learn from our past or suffer the same errors. Immigration laws are a recent concept. The Immigration and Nationality Act of 1952 was the first broad immigration law. Still immigrants were generally welcomed and helped by Americans to adjust to and become part of society.
Laws of Exclusion: Prior to 1952, “immigration laws” were designed solely to exclude certain ethnic groups. The Naturalization Act of 1790 excluded blacks except as slaves. After that there were acts specifically excluding Chinese, Japanese, Asian Indians, Filipinos, and others. Isn’t our current policy strikingly similar? http://www.umass.edu/complit/aclanet/USMigrat.html We became a melting pot despite our white ancestors’ best efforts.
The Baby Boom: In 1965 we first began to prefer immigrants with skills. The Baby-boomers were coming of age. A graph of births per year is at right. Births rose dramatically from 1945 to 1957. After that rates fell. The Baby-boom generation officially extends to 1964. http://upload.wikimedia.org/wikipedia/en/6/6d/Birthratechart_stretch.PNG
There was a glut of new 20-something workers entering the marketplace to fill the less-skilled positions at the bottom of the growing corporate pyramid. Unskilled immigrant workers, therefore, would further overfill an overflowing population.
1990 was the tipping point.
The youngest Baby boomers turned 26 and wanted to move out of the lowest-level jobs. The problem, there were simply not enough young workers to replace them. Corporations found they could not fill the unskilled workers with Americans. They had two choices:
1. Hire immigrants, or
2. Outsource to other countries.
They did both.
As time passed, the situation worsened. There was pressure to outsource as China found a great new way to drive its economy. There was pressure for Mexicans to come to the United States to fill the jobs left vacant. For years we ignored them as we always had.
Immigrants are Critical to Our Economy.
When a corporation outsources jobs overseas, it no longer needs the supervisors or managers above that group of workers and those jobs are lost as well.
When a corporation hires immigrants, all of the supervisory and management jobs are retained in the US to oversee those workers.
9/11
Then the Bush Administration slammed the door using 9/11 as the excuse. By some accounts there are around 10 million “illegal” aliens in the United States. They have been here for years helping to fill the critical jobs at the bottom of the corporate pyramid.
Mexican immigrants could not go back home, as they had for years, for fear they would not be able to return to the US. The vast majority, like all Americans, had good steady jobs and paid their taxes and even contributed to Social Security and Medicare without hope of benefitting from them.
The Echo Boom
This is the group born between the mid-1980s and the mid-1990s, peaking in 1990. This group is coming of age, but they are technologically savvy. They will fill the high-tech, healthcare and green jobs of the next economy. They want nothing to do with the blue color jobs required to run this country’s manufacturing and service base. It is also a small blip in comparison to the Boom.
The Solution is Simple
You cannot remove ten million people, even if you could find them. We cripple US businesses struggling already to compete by denying them Mexican workers.
Pure amnesty is simply politically impossible. A fence is just silly.
Undocumented Workers Must Join a Union
If we provided that any illegal alien could secure all necessary working papers to become “legal” so long as they join a recognized American union and remain in good standing, we would solve all of the problems associated with Mexican workers.
Then employers have no excuse. If they need more low-skilled workers, they need only turn to the unions. Any illegal alien who chooses not to join a union, will not be able to find work.
Unions will help workers adjust to our culture, language and work ethic. They will help them secure training and better wages, make sure they are not competing with Americans, and help insure they have health and other insurance.
American workers, whether in guilds, trades or unions, have always been there to help immigrants adapt. They will do it again.
Who comes to the US? Immigrants are people with the guts to leave their families, cultures and traditions to venture into a new land in search of a way to improve themselves. They are tough, clever and self-sufficient.
Most people fear the risks and stay home, no matter the desperation of their native situation. Immigrants bear these great burdens and still send most of their often meager wages home. Immigrants are truly special people. This has always been what defines Americans. This applies to Mexican immigrants as completely it has to all other nationalities.
A Bit of History: As always, we should learn from our past or suffer the same errors. Immigration laws are a recent concept. The Immigration and Nationality Act of 1952 was the first broad immigration law. Still immigrants were generally welcomed and helped by Americans to adjust to and become part of society.
Laws of Exclusion: Prior to 1952, “immigration laws” were designed solely to exclude certain ethnic groups. The Naturalization Act of 1790 excluded blacks except as slaves. After that there were acts specifically excluding Chinese, Japanese, Asian Indians, Filipinos, and others. Isn’t our current policy strikingly similar? http://www.umass.edu/complit/aclanet/USMigrat.html We became a melting pot despite our white ancestors’ best efforts.
The Baby Boom: In 1965 we first began to prefer immigrants with skills. The Baby-boomers were coming of age. A graph of births per year is at right. Births rose dramatically from 1945 to 1957. After that rates fell. The Baby-boom generation officially extends to 1964. http://upload.wikimedia.org/wikipedia/en/6/6d/Birthratechart_stretch.PNG
There was a glut of new 20-something workers entering the marketplace to fill the less-skilled positions at the bottom of the growing corporate pyramid. Unskilled immigrant workers, therefore, would further overfill an overflowing population.
1990 was the tipping point.
The youngest Baby boomers turned 26 and wanted to move out of the lowest-level jobs. The problem, there were simply not enough young workers to replace them. Corporations found they could not fill the unskilled workers with Americans. They had two choices:
1. Hire immigrants, or
2. Outsource to other countries.
They did both.
As time passed, the situation worsened. There was pressure to outsource as China found a great new way to drive its economy. There was pressure for Mexicans to come to the United States to fill the jobs left vacant. For years we ignored them as we always had.
Immigrants are Critical to Our Economy.
When a corporation outsources jobs overseas, it no longer needs the supervisors or managers above that group of workers and those jobs are lost as well.
When a corporation hires immigrants, all of the supervisory and management jobs are retained in the US to oversee those workers.
9/11
Then the Bush Administration slammed the door using 9/11 as the excuse. By some accounts there are around 10 million “illegal” aliens in the United States. They have been here for years helping to fill the critical jobs at the bottom of the corporate pyramid.
Mexican immigrants could not go back home, as they had for years, for fear they would not be able to return to the US. The vast majority, like all Americans, had good steady jobs and paid their taxes and even contributed to Social Security and Medicare without hope of benefitting from them.
The Echo Boom
This is the group born between the mid-1980s and the mid-1990s, peaking in 1990. This group is coming of age, but they are technologically savvy. They will fill the high-tech, healthcare and green jobs of the next economy. They want nothing to do with the blue color jobs required to run this country’s manufacturing and service base. It is also a small blip in comparison to the Boom.
The Solution is Simple
You cannot remove ten million people, even if you could find them. We cripple US businesses struggling already to compete by denying them Mexican workers.
Pure amnesty is simply politically impossible. A fence is just silly.
Undocumented Workers Must Join a Union
If we provided that any illegal alien could secure all necessary working papers to become “legal” so long as they join a recognized American union and remain in good standing, we would solve all of the problems associated with Mexican workers.
Then employers have no excuse. If they need more low-skilled workers, they need only turn to the unions. Any illegal alien who chooses not to join a union, will not be able to find work.
Unions will help workers adjust to our culture, language and work ethic. They will help them secure training and better wages, make sure they are not competing with Americans, and help insure they have health and other insurance.
American workers, whether in guilds, trades or unions, have always been there to help immigrants adapt. They will do it again.
Solving the Healthcare Crisis
There are around 300 million people in the US. About 50 million, or one in six, is without health insurance coverage. Health insurance costs are growing at double digit rates, and have for many years.
A Proposal
Eliminate State Governance: Every State regulates health and other insurance providers. This was quite relevant when companies were small and most employees were within one state’s boundaries. Now, of course, even very small companies are multi-state if not international.
A significant cost of providing health and other insurance coverages is compliance with the regulations of the 50 states. Each company must establish a separate corporation in each state with executives and management. Each state has its own special requirements and coverages. Various states require certain coverage for chiropractic, psychological, psychiatric, pregnancy consulting and other care and services. This complexity alone prohibits new creative insurers from competing with the huge established providers. Open competition drives prices down and options up. Establishing a national regulatory framework that preempts State regulation would dramatically reduce the cost of health insurance immediately.
Allow Open Cooperation: If any group of individuals, businesses, charities, unions, trade associations, etc could band together to negotiate national and even international group health, life, disability, workers comp and even liability, auto and casualty insurance coverage for their members, including whatever services and care the membership deemed valuable, one would drive substantial reductions in the price of health and all other insurance.
One auto mechanic cannot afford coverage for himself or his employees. If the national trade association of auto mechanics were permitted to band together and negotiate group rates, they could all afford reasonable insurance with the coverages they deem important. Charities would band together to create huge groups of uninsured individuals and provide affordable coverage that delivered only the coverage these individuals want and need. This is not allowed under today’s laws. Negotiating power for purchasers will reduce insurance prices significantly.
Provide Catastrophic Coverage: The government should provide only coverage in the event of major health problems. If an individual’s illness or injury exceeds some set minimum, we will use $150,000 for these purposes, then the government will pay for all future medical and prescription costs for the patient.
The risk to insurance providers would be capped at $150,000 and so basic insurance premiums would be much lower and more people could afford coverage. Doctors working on patients whose medical costs have exceeded $150,000 would be employees of the government as to this work, subject to the negotiated rates, etc. Doctors could opt out and transfer patients to doctors in the system. Most would remain, just as most accept Medicare and insurance company negotiated rates at present.
For this work, they would be immune from medical malpractice liability, eliminating the extreme costs of that coverage for this higher-risk work. Mistakes would be addressed by a government medical panel and the physician would be disciplined accordingly, including criminal penalties for situations were punitive damages might otherwise be granted.
If one elects government coverage, the patient understands that he or she has no right to recover against the doctors if there is malpractice, but he or she also knows that the government will cover medical bills, prescription costs and other medically required items for as long as required. An individual with means could opt out of the government provided system.
All costs now expended by the government on Medicaid, Medicare, Social Security Disability and other programs would be rolled into this program.
Wellness: Different costs, underwriting requirements and the like would be encouraged rather than discouraged as they are now. Those who are smokers or obese would pay more. Groups would strongly encourage members to quit smoking, lose weight, exercise and get healthy or risk being removed from the group entirely. HIPPA would be amended to allow the group to monitor participants with chronic but manageable diseases such as diabetes, to make sure that the members are taking their meds and monitoring important vitals. Because of the government cap, the costs of health insurance associated with these diseases would not be as significant.
Brokers: Insurance brokers would be held to a higher standard. Broker malpractice would be expanded. Kickbacks, a common practice today, must be eliminated. At present, when a broker reaches certain annual premium levels, the insurance company pays that broker a bonus. These are often very substantial. They are obviously designed to convince the broker to sway the decisions of insurance purchasers toward a certain provider even if that provider is not right for them.
Conclusion:
Freeing the system of undue regulation, permitting greater creativity and providing negotiating power to the purchaser will dramatically reduce insurance prices and increase the number of people covered. Adding catastrophic coverage for all cases above a certain limit will also reduce ordinary coverage prices and make sure that everyone is taken care of if they suffer major illness or injury. In the end, it should be affordable for the government and dramatically increase the number of Americans who have coverage, which will ultimately help the medical community and everyone wins (except perhaps malpractice plaintiffs’ attorneys).
A Proposal
Eliminate State Governance: Every State regulates health and other insurance providers. This was quite relevant when companies were small and most employees were within one state’s boundaries. Now, of course, even very small companies are multi-state if not international.
A significant cost of providing health and other insurance coverages is compliance with the regulations of the 50 states. Each company must establish a separate corporation in each state with executives and management. Each state has its own special requirements and coverages. Various states require certain coverage for chiropractic, psychological, psychiatric, pregnancy consulting and other care and services. This complexity alone prohibits new creative insurers from competing with the huge established providers. Open competition drives prices down and options up. Establishing a national regulatory framework that preempts State regulation would dramatically reduce the cost of health insurance immediately.
Allow Open Cooperation: If any group of individuals, businesses, charities, unions, trade associations, etc could band together to negotiate national and even international group health, life, disability, workers comp and even liability, auto and casualty insurance coverage for their members, including whatever services and care the membership deemed valuable, one would drive substantial reductions in the price of health and all other insurance.
One auto mechanic cannot afford coverage for himself or his employees. If the national trade association of auto mechanics were permitted to band together and negotiate group rates, they could all afford reasonable insurance with the coverages they deem important. Charities would band together to create huge groups of uninsured individuals and provide affordable coverage that delivered only the coverage these individuals want and need. This is not allowed under today’s laws. Negotiating power for purchasers will reduce insurance prices significantly.
Provide Catastrophic Coverage: The government should provide only coverage in the event of major health problems. If an individual’s illness or injury exceeds some set minimum, we will use $150,000 for these purposes, then the government will pay for all future medical and prescription costs for the patient.
The risk to insurance providers would be capped at $150,000 and so basic insurance premiums would be much lower and more people could afford coverage. Doctors working on patients whose medical costs have exceeded $150,000 would be employees of the government as to this work, subject to the negotiated rates, etc. Doctors could opt out and transfer patients to doctors in the system. Most would remain, just as most accept Medicare and insurance company negotiated rates at present.
For this work, they would be immune from medical malpractice liability, eliminating the extreme costs of that coverage for this higher-risk work. Mistakes would be addressed by a government medical panel and the physician would be disciplined accordingly, including criminal penalties for situations were punitive damages might otherwise be granted.
If one elects government coverage, the patient understands that he or she has no right to recover against the doctors if there is malpractice, but he or she also knows that the government will cover medical bills, prescription costs and other medically required items for as long as required. An individual with means could opt out of the government provided system.
All costs now expended by the government on Medicaid, Medicare, Social Security Disability and other programs would be rolled into this program.
Wellness: Different costs, underwriting requirements and the like would be encouraged rather than discouraged as they are now. Those who are smokers or obese would pay more. Groups would strongly encourage members to quit smoking, lose weight, exercise and get healthy or risk being removed from the group entirely. HIPPA would be amended to allow the group to monitor participants with chronic but manageable diseases such as diabetes, to make sure that the members are taking their meds and monitoring important vitals. Because of the government cap, the costs of health insurance associated with these diseases would not be as significant.
Brokers: Insurance brokers would be held to a higher standard. Broker malpractice would be expanded. Kickbacks, a common practice today, must be eliminated. At present, when a broker reaches certain annual premium levels, the insurance company pays that broker a bonus. These are often very substantial. They are obviously designed to convince the broker to sway the decisions of insurance purchasers toward a certain provider even if that provider is not right for them.
Conclusion:
Freeing the system of undue regulation, permitting greater creativity and providing negotiating power to the purchaser will dramatically reduce insurance prices and increase the number of people covered. Adding catastrophic coverage for all cases above a certain limit will also reduce ordinary coverage prices and make sure that everyone is taken care of if they suffer major illness or injury. In the end, it should be affordable for the government and dramatically increase the number of Americans who have coverage, which will ultimately help the medical community and everyone wins (except perhaps malpractice plaintiffs’ attorneys).
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