Carpe Diem

One size fits none: Another reason why a national minimum wage makes no sense-it’s imposed uniformly on all industries

In a recent article in The American titled “A National Minimum Wage is a Bad Fit for Low-Cost Communities,” my AEI colleague Andrew Biggs and I argued that a one-size-fits-all minimum wage, without any adjustments for the significant differences in the cost of living across the country, will disproportionately affect low-skilled workers in low-cost areas.

In Saturday’s Wall Street Journal (“Why Subway Doesn’t Serve a $14 Reuben Sandwich”), my friend Michael Saltsman makes a slightly different, but related, argument that a one-size-fits-all minimum wage imposed on all businesses and industries is bad public policy. Reason? Without any adjustments for the significant differences in industries that employ low and unskilled workers, raising the minimum wage uniformly to $10.10 per hour for every industry and every business will disproportionately affect employers and workers in low-cost, low-wage, low profit-margin industries like fast-food restaurants such as McDonald’s, Domino’s and Subway.

For example, Michael first looks at Costco, whose CEO Craig Jelinek supports raising the minimum wage and pays his new employees $11.50 an hour. But one of the reasons that Costco has the luxury to pay an entry-level wage that is 58% above the current $7.25 per hour minimum is that the company typically charges customers more than $100 a year in membership fees. In total, that’s about $2 billion annually in membership fees that naturally gives Costco a natural advantage over Walmart, McDonald’s and Subway when it comes to paying entry-level wages. Further, Costco enjoys more than $10,000 in profits per employee, which is about five times the $2,000 in profits that a fast food chain generates per worker. No wonder that Costco can afford to pay new employees more per hour than a nearby McDonald’s or Subway. Realistically, a 40% hike in the minimum wage to $10.10 per hour would have no effect on a membership-based, high-profit-per-employee employer like Costco, but could have devastating effects on a low-profit-per-employee chain like McDonald’s or Subway.

Secondly, Michael compares high-end, high-priced, high-profit margin delicatessens like Ann Arbor-based Zingerman’s, where Obama recently dined and enjoyed one of the restaurants $14 Reuben sandwiches (and that’s the sandwich for the “small eater” – the full-size Zingerman’s Reuben is $16.50). Further, Labor Secretary Tom Perez recently visited a Shake Shack in Washington, D.C. to promote the restaurant’s above-minimum starting wage. But the restaurant’s cheapest double-cheese burger is $7.40, its shakes are $5, and the least-expensive fries are almost $3. At a nearby McDonald’s, you could probably order comparable items from the Dollar Menu that might cost only $5 instead of a $15 meal at Shake Shack. It’s no surprise that Shake Shack or Zingerman’s can afford higher entry-level wages than a nearby McDonald’s or Subway.

Here’s Michael’s conclusion:

If McDonald’s could raise burger prices by 40% without losing customers, it would have done so already without input from Messrs. Obama and Perez. But customers are price sensitive. The same dilemma exists at restaurants, grocery stores and countless other service businesses across the country. If higher prices aren’t an option for offsetting a wage hike, costs have to be reduced by eliminating jobs and other employment opportunities.

Bottom Line: Zingerman’s Deli and Shake Shack are in the high-end, high-priced, high-profit margin casual dining industry, and membership-based Costco is in the high-profit-per employee retail industry, and they can already afford to pay above-minimum starting wages. In contrast, fast-food chains like McDonald’s, Subway and Domino’s, and retailers like Walmart, are actually in a much different industries – the low-end, low-priced, low-profit-margin, no-membership end of the fast food and retail industries, and would suffer the most from a 40% uniform hike in the minimum wage to $10.10 per hour for every employer in America.

As Andrew Biggs and I pointed out, a uniform, one-size-fits-all minimum wage disproportionately and adversely affects entry-level workers in low-cost communities without impacting high-cost communities. Similarly, Michael points out that raising the minimum wage to $10.10 per hour would disproportionately and adversely affect low-priced, low profit-margin employers like McDonald’s, Subway and Domino’s, without affecting Zingerman’s, Shake Shack and Costco. And that’s another reason that a one-size-fits-all, uniform national minimum wage on every employer in the country is a flawed and deficient public policy – it’s not adjusted for the significant differences in industries that employ low skilled workers.

Carpe Diem

In observance of the ‘green holy day’ Earth Day: The science of economics versus the religion of environmentalism

Some required reading in observance of the “green holy day,” aka Earth Day (April 22), from Steven Landsburg’s book “Armchair Economist,” in the chapter titled “Why I Am Not an Environmentalist: The Science of Economics versus the Religion of Ecology“:

The hallmark of science is a commitment to follow arguments to their logical conclusions; the hallmark of certain kinds of religion is a slick appeal to logic followed by a hasty retreat if it points in an unexpected direction. Environmentalists can quote reams of statistics on the importance of trees and then jump to the conclusion that recycling paper is a good idea. But the opposite conclusion makes equal sense. I am sure that if we found a way to recycle beef, the population of cattle would go down, not up. If you want ranchers to keep a lot of cattle, you should eat a lot of beef. Recycling paper eliminates the incentive for paper companies to plant more trees and can cause forests to shrink. If you want large forests, your best strategy might be to use paper as wastefully as possible [MP: e.g. print as many emails as possible]— or lobby for subsidies to the logging industry. Mention this to an environmentalist. My own experience is that you will be met with some equivalent of the beatific smile of a door-to-door evangelist stumped by an unexpected challenge, but secure in his grasp of Divine Revelation.

This suggests that environmentalists — at least the ones I have met — have no real interest in maintaining the tree population. If they did, they would seriously inquire into the long-term effects of recycling. I suspect that they don’t want to do that because their real concern is with the ritual of recycling itself, not with its consequences. The underlying need to sacrifice, and to compel others to sacrifice, is a fundamentally religious impulse.

Suggesting an actual solution to an environmental problem is a poor way to impress an environmentalist, unless your solution happens to feed his sense of moral superiority. Subsidies to logging, the use of pesticides, planned extinctions, and exporting pollution to Mexico are outside the catechism; subsidies to mass transportation, the use of catalytic converters, planned fuel economy standards, and exporting industry from the Pacific Northwest are part of the infallible doctrine. Solutions seem to fall into one category or the other not according to their actual utility but according to their consistency with environmentalist dogma.

Carpe Diem

Ticket sales (and resales) are a matter of property rights

In today’s Lansing State Journal, I make the case that an outdated 1931 Michigan ticket law should be repealed, because it puts onerous restrictions on the secondary ticket market, requiring that ticket holders receive written consent from the artist, team or venue before selling a ticket above its face value. In essence, selling tickets above face value becomes legal in Michigan only if you pay exorbitant fees to use the ticket companies’ tightly controlled online market. No in-person sales are allowed.

Rep. Tim Kelly, R-Saginaw, has introduced legislation (House Bill 5108) that would open Michigan’s ticket resale market and allow fans to buy and sell tickets in person the same as they can do now only through online resale sites. The bill has received stiff opposition from — you guessed it — teams and venues. They know that if this bill passes, they will lose their state-enforced monopolies and they will no longer be able to force you to pay exorbitant ticket fees just to sell your ticket to your neighbor or co-worker. That is why they are calling on celebrities and political contributors to help block this legislation and maintain the anti-consumer and anti-market status quo.

But opposition from organized, well-funded special interest groups shouldn’t matter. This is a simple case of property rights and free market principles for sports and music fans in Michigan. Just like any other product, when you buy a ticket you own it. And when you own a ticket, you should be free to do whatever you want with it. Nobody — especially not ticket companies protecting their monopolies — should be able to use state law and the government to prevent you from selling your own property.

Carpe Diem

Earth Day sponsors want ‘endangered species’ to be a ‘thing of the past’ even though that’s the ultimate fate of all species

The Earth Day Network, the group that officially sponsors Earth Day annually, is a member of the Endangered Species Coalition, which promotes Endangered Species Day every year on May 18. That day is dedicated “to learn not only about the importance of biodiversity and how to protect threatened species, but to have hope that through awareness, education and personal involvement, we can make the term ‘endangered species‘ a thing of the past.”

How realistic is it that we could ever make “endangered species” a thing of the past? Not very likely at all, especially given the long history of millions of species eventually going extinct over millions of years. Here what the Department of Paleobiology at the Smithsonian Institute says about extinction on its website (emphasis added):

Extinction is the complete demise of a species. It takes place when all individuals of a species die out. Extinction has occurred throughout the history of life on Earth. It is the ultimate fate of all species. In fact, it has been estimated that 99.9% of all species that have ever lived on Earth are now extinct. The causes of extinction are many and highly variable. They vary from environmental changes brought about by events such as floods, volcanic eruptions, or meteorite impacts, to fluctuations in sea level or climate, to competition between species. In the past 25,000 years humans have become a significant additional cause of extinction for many species.

Species are constantly going extinct, often for reasons that are not particularly obvious, and at other times for reasons that are peculiar to the species in question. The processes that lead to this pattern of constant background extinction occur continuously, so that at any given time, while some species are going extinct, others are making their appearance for the first time. Over time, this process of continual turnover produces great changes in the species composition of the Earth’s ecosystems.

Key point: Extinction is the natural and ultimate fate of all species! And that means that “endangered species” will always be a reality, and just a natural part of the ongoing process of natural selection that will ultimately lead to the demise of thousands of species currently alive.

Here’s an example of a process of natural selection taking place in the Pacific Northwest - the barred owl is more aggressive and they reproduce faster than the spotted owl, and is therefore outcompeting the endangered spotted owl for food and nesting areas. Solution? To save the spotted owl, the U.S. Fish and Wildlife Service has authorized the shooting of more than 70 not-so-rare barred owls, in an attempt to protect the endangered spotted owl. Well, maybe it’s time to let nature takes its natural course, leave the survival or non-survival of the spotted owl to Mother Nature? Perhaps a scientific cost-benefit analysis suggests that the huge potential costs of saving the spotted owl outweigh the relatively limited benefits (to whom?) of artificially continuing its existence?

The cost-benefit approach of endangered species was a topic in Steven E. Landsburg’s book “Fair Play“:

Cayley [Steven Landsburg's daughter] has been taught [in school] that all endangered species should be preserved, but she’s also been taught that the AIDS virus should be eradicated. When Cayley’s third grade teacher required her to write a report on the endangered species of her choice, I encouraged her to choose the AIDS virus. (I was unsuccessful.) The AIDS virus is probably one of only many species that are not as endangered as they ought to be. We want the virus eradicated because its continued existence imposes unacceptable costs on its victims. That’s no different in principle from saying the snowy owl should be eradicated because it imposes unacceptable costs on producers and consumers of lumber. Some such statements are true and others are false; distinguishing the true ones from the false ones typically requires a thorough and unbiased inquiry into specific circumstances. Blanket statements like “endangered species should be preserved” are both silly and useless. And, because they inculcate the habit of substituting bias for analysis, those statements are dangerous as well.

MP: Blanket statements like “endangered species should be a thing of the past” and “all endangered species should be preserved” and “Earth hangs in the balance” and “like the polar bear, human life is under threat” and “rising sea levels encroach on our cities” are the very basis of Earth Day and its twin holiday Endangered Species Day. As Steven Landsburg reminds us, that type of Earth Day “thinking” is really substituting environmental biases and cliches for scientific and economic analysis and thinking, and in that case we can only conclude that Earth Day itself is a very dangerous annual event!

Carpe Diem

Happy Easter: Enjoy your cheap eggs and food, they are both more affordable over the last decade than any time in history

eggs

foodshareIt’s Easter weekend and time to do an annual update on the falling inflation-adjusted price of eggs over the last 120 years or so. The top chart above shows the real, inflation-adjusted wholesale price of eggs (per dozen in 2014 dollars), annually back to 1890. The wholesale price for eggs today (about $1.12 per dozen) is 85% cheaper than the price a century ago when the wholesale price was as high as $8.20 per dozen in 1909 measured in today’s dollars. For those who think the decades of the 1950s and 1960s were the “golden age of the middle class,” consumers in those years paid inflation-adjusted prices for eggs that were two to four times higher than the prices over the last decade of “middle class stagnation and decline.”

And it’s not just egg prices that have fallen over the last 100 years – most food products have gotten increasingly more affordable over time relative to other goods and services, and relative to our incomes. The bottom chart above shows that household spending on food (both at home and away from home) has never been more affordable as a share of our disposable income than in the last decade based on USDA data (Table 7) through 2012. Food expenditures as a percent of disposable income were in double-digits for the entire 20th century, and were above 20% for most of the 1929-1952 period. It’s only been since 2000 that spending on food has fallen to about 10% of disposable income, and it’s been between 9.5% and 10% for the last decade. During the so-called “golden age of the middle class” in the 1950s, American households spent roughly twice as much of their take-home pay to feed themselves and their families compared to the last decade of “middle class stagnation.”

Bottom Line: Eggs and most of our food products have gotten increasingly more affordable over time, thanks to advances in farming and food processing technologies, spectacular increases in yields for corn, wheat and soybeans, increasing milk production per cow, lower transportation costs, and greater overall food supply chain efficiencies. The price you’re paying for eggs today at Easter time is very likely only a fraction of the price your parents, grandparents and great-grandparents paid in decades past. As a share of disposable income, food in the US has never been more affordable than in the last decade, and the average middle-class American has never been better off than today when it comes to the affordability of one of life’s basics – food.

 

Carpe Diem, Economics

The ‘Collected Works of Milton Friedman’ project

miltonThe thousands of Milton and Rose Friedman fans out there will be happy to know about the Hoover Institution’s “Collected Works of Milton Friedman” project showcasing the lifetime work of Milton and Rose Friedman. Maybe “happy” would an understatement, and “ecstatic” would be a better adjective, to find such a well-organized (searchable and sortable) treasure of Milton and Rose Friedman’s archived books, columns, photos, quotations, audio and video materials, tributes and accolades, congressional testimonies, all of his academic articles, etc. For example:

1. Milton Friedman wrote 121 op-eds that appeared in the Wall Street Journal between 1961 and 2006, here is a complete list (with full text) of those op-eds that can be sorted by title and date.

2. Between 1966 and 1984, Milton Friedman wrote more than 300 op-eds for Newsweek, and those are available here (full text), sortable by date and title.

3. Friedman wrote 22 op-eds that appeared in the New York Times between 1964 and 2002, and those are available here.

4. Here’s a comprehensive list of more than 800 of Milton Friedman’s popular and public policy columns and articles that appeared between 1943 and 2006.

5. Here is a database of Milton Friedman quotations, conveniently organized by 29 different topics with the following description:

It’s a testament to Milton Friedman’s influence and legacy that many contemporary politicians, economists, and academicians still ask, “What would Milton say?” Rather than attempting to put words into Milton’s mouth, why not let Milton answer that question himself? Click on a topic to see Milton’s thoughts on issues ranging from bureaucracy to taxes.

6. Here is a list and database of Milton Friedman’s congressional testimony starting in 1942.

7. Here is a list and database of 250 articles of Milton Friedman that appeared in academic journals and other publications between 1935 and 2005.

8. Here’s a database of thousands of photographs and slideshows of Milton and Rose Friedman through the years, including the one above taken at the Nobel Ball in 1976.

And the resources above are just a fraction of what’s now available online at the Hoover Institution’s “Collected Works of Milton Friedman.” Enjoy!

Carpe Diem

Earth Day dilemma: UK wind turbine kills rare bird – white-throated needletail – sighted only 8 times in UK since 1846

On Earth Day 2014, its sponsors want us to both “utilize wind,solar and other forms of energy for a better future,” and also “help save endangered species.” Although it’s not yet classified as endangered, there have only been eight recorded sightings of the white-throated needletail bird in the UK since 1846. So when one was sighted off the west shores of Scotland last summer, birdwatchers were understandably excited. According to the Daily Mail:

A group of 40 enthusiasts dashed to the Hebrides to catch a glimpse of the brown, black and blue bird, which breeds in Asia and winters in Australasia. But instead of being treated to a wildlife spectacle they were left with a horror show when it flew into a wind turbine and was killed.

John Marchant, 62, who had made the 500-mile trip all the way from Norfolk, said: ‘We were absolutely over the moon to see the bird. We watched it for nearly two hours. “But while we were watching it suddenly got a bit close to the turbine and then the blades hit it. We all rushed up to the turbine, which took about five minutes, hoping the bird had just been knocked out the sky but was okay. Unfortunately it had taken a blow to the head and was stone dead. It was really beautiful when it was flying around, graceful and with such speed. To suddenly see it fly into a turbine and fall out the sky was terrible.”

The last sighting of a white-throated needletail was 22 years ago. A relative of the common swift, it is said to be capable of flying at an astonishing 106mph.

MP: What’s an environmentalist to do — a) support wind energy, or b) save endangered and rare species of birds? Reminds me of the joke about the young boy who says to his father, “Dad, I want to grow up and be a musician.” The father says, “Well, son, you’re going to have to make a choice.”

HT: Juandos

Carpe Diem

PETA-sponsored bossettes put Michelle Obama in a ‘timeout’ and boss her around about using real eggs at the White House

Although it’s now been documented that it’s based on outdated research, false or misleading claims, and “junk science,” Facebook COO Sheryl Sandberg and the Girl Scouts are leading a national “Ban Bossy” campaign to ban the word “bossy” from the English language. Reason? It allegedly hurts the self-esteem of girls and women, and undermines girls and women who exhibit leadership skills by labeling them with pejoratives like “bossy.

Well, PETA apparently didn’t get the memo or sign the “I will #BanBossy pledge.” Because in the PETA-sponsored video above, titled “Michelle Obama, We Need to Talk,” a female-only cast of young girls bosses the First Lady around for more than a minute about using real eggs at the 136th annual White House Easter Egg Roll taking place on Monday. According to the Washington Times the young bossy bossettes gang up on Mrs. Obama and put her in a “timeout” to “think about the ramifications of wastefully using thousands of hens’ eggs every year in the White House Easter Egg Roll.” Rather than use real eggs, the young bossettes want Michelle to switch to using reusable, plastic eggs.

Questions: Where are the boys, why are the girls being so bossy, and what about the carbon footprint of the plastic eggs?

Carpe Diem

Friday afternoon links

sowell1. Quotation of the Day from Thomas Sowell above.

2. Coming Soon: Facebook to Introduce a Feature that Will Notify Users When Their Friends are Nearby.

3. Cash-Only, Old School Medicine: I think we can expect more of this:

In a post-Affordable Care Act enrollment landscape, some say a steady trickle of primary care physicians will abandon insurance companies and government regulations for the simplicity of charging patients directly. And more patients who have insurance may decide to also pay an additional fee on their own, because they want more one-on-one time.

4. The Overprotected Kid: A preoccupation with safety has stripped childhood of independence, risk taking, and discovery—without making it safer, writes Hana Rosin in The Atlantic.

When my daughter was about 10, my husband suddenly realized that in her whole life, she had probably not spent more than 10 minutes unsupervised by an adult. Not 10 minutes in 10 years. It’s hard to absorb how much childhood norms have shifted in just one generation.

5. The Overprotected Kid II: Income Inequality Institute to Pay Infamous Class Warrior Paul Krugman $25,000 per Month to Do Basically Nothing.

6. Demon Ethanol: It benefits special interests, hurts consumers, and harms the planet, says A. Barton Hinkle. It’s also one of the few (only?) subjects on which all corners of the ideological map agree.

7. University of Michigan News: Black student from Detroit with ACT score of 23 (68th percentile) was “unfairly” rejected by the University of Michigan, and she demands to be admitted. Jennifer Gratz challenges her to an affirmative action racial profiling in college admissions debate.

8. Amazing: Watch How To Cut Tomatoes In Just 5 Seconds!

9. Amazing II: Job applicants for “World’s Toughest Job” get a big shock

10. How Much Do You Care About Grammar? Find out here.

Bonus Cartoon of the Day:payne