Linda Lutton on Bush tax cut

Great Debates
61

Guinistasia: <<What, are you trying to tell me that these big mega-corporations cannot afford to pay these people enough so that they aren’t starving to death without going bankrupt?
I find that EXTREMELY hard to believe.>>

What I find EXTREMELY hard to believe is that you’re in a position to know better than the management and boards of these companies what they can afford to pay their workers.

I don’t know that too many people are “starving to death” working for American-owned factories. I think you’ve gone just a little bit overboard here.

Now one thing I DO know is that lots of people are starving to death in the ABSENCE of American-owned factories.

62

I have spoken with people who have visited down there, people who have connections. Why do you think the people in Nicaragua and Cuba supported Castro and Ortega? They didn’t have freedom before, nor food. Now, they wouldn’t have freedom, but they’d have food.

It doesn’t take a genius to know that when your stomach is empty, you’ll support whoever fills it.

I’m sorry, economics is NOT a good reason to support someone like Pinochet or Somoza.

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  1. Cuba had once had a Democracy, which had been overthrown by a dictator. People supported Castro because he promised to restore democracy. Turns out he had been lying.

  2. Prior to Castro, Cuba was one of the wealthiest countries in Latin America. There was no starvation.

  3. Today, thanks to Castro and communism, Cuba is one of the poorest countries in Latin America.

64

Panzerman:

My first interpretation of the “reduce employment by 10%” added an implied “of the minimum wage workers affected”

(Which kind of makes sense, if 90% of the minimum wage workers are making 110% of their previous wages, total wages spent on them would remain constant)

65

pman2 replied to me: *“The quote uses the phrase ‘reduce employment by x percent’. It does not explicitly equate that with “increase overall unemployment levels by x percentage points,” which is how pman2 read it. Obviously, there has to be another way to interpret the phrase…”

Alright…what’s the other interpretation? How can employment decline without a corresponding increase in unemployment? Convince me. I don’t think logic’s on your side, here.*

[tearing hair] Great jumping Jehosaphat!! [calmly] Okay, okay, okay. Here is the situation. We have the following two sentences from the original HHS report:

pman2 interprets the first sentence as meaning that a 10 percent minimum wage hike would raise the overall national unemployment level from, say, 4% to 5%. This necessarily implies that the second sentence means that the same hike would raise the overall national unemployment level from 4% to 14%. With me so far?

Okay. Then allow me calmly and rationally to inquire, WHAT THE SUBLIME FUCK ARE YOU THINKING??? You are suggesting that a mere 10% raise in the m-w—which at the time of the report’s writing amounted to less than 60 cents, directly affecting only 17% of total jobs, many of which are part-time—is seriously predicted by economists outside of a lunatic asylum to RAISE TOTAL UNEMPLOYMENT LEVELS TO AS MUCH AS 14% OF THE TOTAL WORKFORCE!!! For heaven’s sake, total unemployment as a result of the 1980-81 recession was only 10.8%! (And unemployment levels during the recession of the early 90’s were significantly lower!) The “cripplingly high” levels of unemployment in most European countries in recent decades have been on average less than 10%!

In other words: BY YOUR INTERPRETATION, A SERIOUS GOVERNMENT AGENCY REPORT IS REPRESENTING RESPECTED ECONOMISTS AS PREDICTING THAT AN APPROXIMATELY SIXTY-CENT HIKE IN THE MINIMUM WAGE COULD INCREASE OVERALL UNEMPLOYMENT LEVELS TO AS MUCH AS 14%, BY FAR THE HIGHEST SINCE THE GREAT DEPRESSION OF THE THIRTIES!! Who here really believes that that is a credible interpretation? Can I see a show of hands here? pman2? december? Anybody?? If anyone actually thinks that this is what the quoted sentences mean, I will be happy to dig into the sourced reports further insofar as I can and try to establish whether that can possibly be so. But the notion seems to me so evidently nutty on its face that I’m not going to bother refuting it until I get some explicit assurance that someone here is actually loony enough to believe it.

If, on the other hand, you agree with me that that interpretation is simply incredible, you must relinquish the corresponding claim that the corresponding low end predictions about the negative impact of a m-w hike mean that total unemployment would rise from 4% to 5%. See?

You ask me what an alternative interpretation might be. I haven’t read the sourced reports so I don’t know for sure what they’re getting at. But as a guess, I might speculate that “reduce employment by x percent” refers to x percent of the directly affected m-w jobs, which as I noted above are only about 17% of total jobs. So a job loss at the low end of 1% of 17% of the total jobs would be 0.17% of the total jobs, whereas at the high end it would be 10% of 17% or 1.7% of the total. As I said, I can’t tell for sure whether that’s the right interpretation, but it seems to me vastly more believable than the crazy scenario assumed by your original interpretation.

66

[sweetly and humbly] Or in other words, what MMI said. Thank you MMI, and welcome to the Straight Dope.

67

I’m sure years of US sanctions have nothing to do with it. :rolleyes:

68

Kimstu, please chill out. Excitement can be bad for the arteries.

I have no doubt that the report says what it says. The words are unambiguous.

I do agree with you that the result is non-intuitive, to say the least. However, the economic studies you cited, which purport to show that an increase in the MW REDUCES unemployment, are also non-intuitive..

Maybe the moral is economic models aren’t that reliable, and that serious economic sometimes yield far-out results.

69

december, Sam Stone, and p…man, may I thus summarize your arguments in this (and other threads) thusly:

(1) Any attempt to alleviate poverty through mechanisms, such as a minimum wage, which with mess with markets directly is doomed to failure because the market will respond in such a way as to just hurt those you are trying to help.

(2) Any attempt to alleviate poverty outside of the market mechanisms is immoral because it is messing with the results deemed appropriate by the Holy Market and will also lead to a society in which there is slower economic growth, etc.

Conclusion: We just have to accept the distribution of wealth exactly the way it is.

Is that the basic philosophy you subscribe to or am I misinterpretting it?

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Well MMI beat me to it but I thought I would jump in and concur that the report almost certainly means 1% or 10% of the workers affected by minimum wage or some similar category. Some of the studies I have seen look at teen employment and produce numbers like that. It’s quite absurd to believe that a 10% increase in the minimum wage would create double-digit unemployment in the economy as a whole.

Still it should be noted that the higher-end numbers of the studies are quite significant, probably about 1% of the labour force.

I don’t have the time to post much so I will just provide a couple of links for those interested:

This is a nice article which fleshes out the arguments I made about the minimum wage not being a cost-effective method of helping the working poor especially as compared to the EITC.
http://www.csus.edu/indiv/j/jensena/sfp/min_wage.htm
http://www.cato.org/pubs/regulation/reg18n1c.html
This is another study which looks at the 90-91 m-w increase and finds significant decreases in employment and also offers some criticisms of the Card-Krueger study.Note that I normally wouldn’t link a Cato study if it weren’t for the fact that it was written by proper economists. In particular Kevin Murply is one of the best labour economists around and this study is based on a paper published in the American Economic Review.

71

Yes, I do agree that a MW is likely to be counter-productive. However, I didn’t mean to automatically denigrate all other market mechanisms.

I do not agree with this statement. In fact, I don’t know what it means.

I totally disagree. E.g.

  1. Some experts think that the 3rd world is poised to make a huge jump in wealth, especially if trade is fairly free.

  2. Hernando De Soto is promoting the idea that creating more clear ownership of property and other assets is a key to Latin American wealth formation.

  3. Many 3rd world political systems could be greatly improved, in ways that would promote business success there.

  4. We have seen incredible leaps in the wealth ofthe “Asian Tigers” – several formerly poor Asian countries, Taiwan, Singapore, etc. They should provide a model for how a poor country can become rich. (BTW, none of them succeeded by means of minimum wage laws!)

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december: I have no doubt that the [HHS] report says what it says. The words are unambiguous.

Apparently they aren’t, since you and pman2 seem to think that they mean one thing—which by your own admission is highly “counter-intuitive”, which IMHO is really putting it mildly—while CyberPundit, MMI, and I have no difficulty reading them to mean something different and much more plausible. Nonetheless, I appreciate your concern for my health and I will stop shouting. :slight_smile:

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december: …several formerly poor Asian countries, Taiwan, Singapore, etc. They should provide a model for how a poor country can become rich. (BTW, none of them succeeded by means of minimum wage laws!)

Beg pardon? According to this Department of Labor report, Taiwan does have a national minimum wage, as do South Korea, Turkey, Israel, and many other countries. Singapore and Hong Kong have none, but other countries that have regional or trade-sector-specific minimum wages include Costa Rica, the Philippines, and Thailand. Since each category (national m-w, no m-w, regional or sector m-w) includes both poor and rich countries, I don’t think you can make easy generalizations about the role of the m-w as part of “a model for how a poor country can become rich.”

Btw, I’m curious: are you willing to extend your opposition to the minimum wage to the U.S. as well? Do you think that national and state minimum wage levels should be abolished in this country? If so, what do you think the results would be, and why?

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Whether or not the Tigers have MWs, nobody attributes their remarkable economic success to the MW.

If MW were abolished in the US, my WAG is that:

  1. A certain number of underpaid, exploited minimum wage full-time workers would become even more exploited. (Those working illegally below MW wouldn’t be helped.)

  2. The economy would improve.

  3. Unemployment among non-breadwinners would go down dramatically, e.g. inner city teenagers.

  4. Inner city crime would go down, and the quality of life there would improve.

Overall, my guess FWIW is that US minimum wage laws do more harm than good. In particular, there’s no justification at all for a MW law applying to non-family breadwinners, such as teen-agers, retirees, spouses earning supplemental income, and part-time workers IMHO.

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december: If MW were abolished in the US, my WAG is that: …

Okay, but there’s really no arguing with a WAG unless you’re willing to supply specific evidence for it, so I guess we file it in the general WAG pile.

In particular, there’s no justification at all for a MW law applying to non-family breadwinners, such as teen-agers, retirees, spouses earning supplemental income, and part-time workers IMHO.

Here, just for a change, I agree with you a little bit, at least about teenagers working for pocket money. “Teenager jobs”, generally being part-time and having high turnover rates for reasons unrelated to the amount of the wages, seem most likely to take a hit from m-w hikes (as per CP’s linked report above) and least likely to experience any of the offsetting advantages that I suggested above. On the other hand, devising a separate set of rules for teenagers just provides a powerful incentive to employers to replace full-time adult workers with part-time teens at lower wages, so I’m not sure there’s really an available solution here.

All this lends force to the arguments about why the national m-w will probably never again be able to act as anything like a “living wage”. We’ll just go on setting some kind of a sub-subsistence “wage floor” to cut down on the severe exploitation of the truly desparate, and supplementing that with other forms of relief for the working poor.

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Kimstu, what do* you* think the result of abolishing the mw in the US would be?

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Why are you guys fighting over this stupid percentage issue? I’m with Kimtsu on this one - the meaning is fairly obvious.

If there are 1 million people, and 50,000 are unemployed, you have a 5% unemployment rate.

If a minimum wage law increases unemployment by 10%, the way I would interpret that is that instead of there being 50,000 unemployed, there are now 55,000 unemployed, for a total unemployment rate of 5.5%.

Jshore: Well, you’re certainly going way out of your way to make it sound like we’re a bunch of zealots with some sort of unquestioning faith in the market. Let me restate what you said without the tendentious prose:

I believe that the surest way to increase the overall happiness and success of the human race is to allow people to make their own decisions in life. Free markets and free trade are responsible for the enormous gains in wealth and productivity that we have seen in the last 200 years. Throughout that time, there were always those that fought against it, because in the short term free markets can cause disruptions and pain. It can be difficult to ignore that pain and let the markets work as intended. But economic history has taught us that most attempts at ‘improving’ the market with government regulation have wound up hurting more people than have been helped.

So in a specific case where you want to make the claim that the market can be modified to make the lives better for some one, the burden of proof is on you to make your case. The assumption should be that the market is efficient, and that prices and wages are set at a fairly optimum level.

Now, it certainly is the case that markets fail from time to time, but those are the rare exceptions and not the general rule. If you think that the people in Honduras are being exploited by some flaw in the market that’s letting these companies rape them, make your case. Your emotional feeling that it’s ‘not fair’ is completely irrelevant to the issue.

You know, I feel very strongly for those people as well. We give to charities to help out people in poor countries. My heart sinks every time I see a little child starving in a street in some 3rd world country. But I have the ability to divorce my emotions from issues of fact. And the fact is that most of those countries are poor BECAUSE they have ignored or rejected free markets. They are run by despots, or by gangs of thugs. People are not free to set up shops or run businesses without having everything they worked for expropriated by some regional lord or government official. Infrastructure is not built because all the wealth is diverted to build palaces for the ruling class. And in many cases, the poverty is created by well-meaning but naive bureaucrats who believe that their notions of economic planning override the individual choices of citizens. THAT is where to direct your anger.

Free markets, free minds, free people. Fight for that, and you’ll do far more good for the 3rd world than you’ll ever do by protesting the legitimate efforts of businesses to set up factories in places where there is a demand for them.

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Re: the East Asian economies while it is doubtful that the minimum wage played a role in their development it is not true that they are paragons of free-markets either. Specifically many economists believe that that high public investment in education and other public infrastructure played an important role in their development. Also in some ways the tiger economies are more dirigiste than the United States wrt. to government involvement in business though it is debatable to what extent that helped development.

For Western economies too their golden period in terms of economic growth and widespread improvments in productivity and standards of living came in the 50’s and 60’s a time of rapidly growing public involvement in the economy. And it should be noted that the American economy today has more government than it has ever had and is still pretty much growing as fast as when it had much less government.

No one who takes a broad look at the economic history of the last couple of hundred years will come away with the idea that laisser-faire capitalism works best or that government interference with the economy is always bad.
Does anyone have any comments about the EITC as a substitute for the minimum wage?
http://www.j-bradford-delong.net/TotW/EITC.html

This is a good article about the EITC. Note that the EITC acts as a kind of pseudo minimum wage . According to Long

“The Earned
Income Tax Credit [EITC] gives a family with
two children a 40-cent payment from the IRS for
each of the first $9,500 of income earned. A
part-time $8 an hour job thus becomes–after
taxes–an $11.20 an hour job for the working
poor. The Earned Income Tax Credit means that
a two-child family with a full-time minimum-wage
worker is lifted (barely) above the poverty line.”

So in the example he gives the EITC acts as a massive 40% increase in the wage, far beyond the wildest dreams of the m-w advocates.
Moreover it has the huge advantage that it can be carefully targetted to genuinely poor families unlike the minimum wage and also that it can be funded from a progressive tax.

So as I said I think that liberals would do much better to push for an expansion and simplification of the EITC rather than a minimum wage increase. Helping the public understand what the EITC is about and why it’s important would be a start.

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december: Kimstu, what do you think the result of abolishing the mw in the US would be?

Based on our experiences before we established a national minimum wage with the 1938 Fair Labor Standards Act (which admittedly was more than 70 years ago), I think it would be pretty disastrous. It would increase economic prosperity in some parts of society (i.e., among employers) but it would greatly increase disparity in income and wealth distribution. It would be unlikely to affect the earnings of workers now making more than, say, twice the current m-w, but prevailing wage levels in lower-paying jobs would be driven downwards, most drastically where unemployment rates were highest. I can’t agree with you that it would be likely to raise the employment rates of the least employable, such as African-American teens in the inner city: increased income inequality and a lowered standard of living due to falling wages would not alleviate poverty and crime in those areas, so they would remain comparatively unattractive places for employers to start new businesses in.

80

CP: *Does anyone have any comments about the EITC as a substitute for the minimum wage? *

Not as a substitute but as an adjunct to the m-w, I think it’s a very good thing. Its biggest advantage (besides the sheer size of its income-redistribution effect, as you pointed out) seems to be that it avoids unnecessarily benefiting the low-wage workers who don’t really need it, such as middle-class teenagers. Tax policy can apply much more careful scrutiny to issues like age, need, other sources of income, etc., than employment policy can: you can’t expect an employer to prefer to hire an older, needier, breadwinner employee whom he’ll have to pay more than he would a younger part-time employee. But the IRS doesn’t have that kind of disincentive to hand out more money to those who need it more.

However, I don’t think that we should abandon the idea of also maintaining some kind of official “wage floor”, even if by itself it can’t come close to maintaining workers above poverty. For one thing, the amount we’d have to pay severely exploited workers via the EITC to keep them out of deep poverty would be much higher, due to their employers’ wage-grinding. So the savings realized by exploitative employers who have the muscle and the will to keep wages extremely low would largely be coming right out of the taxpayers’ pocket, which doesn’t seem quite fair.

Nonetheless, I appreciate your advice to draw more attention to the advantages of the EITC and other tax-structure-based poverty relief mechanisms, and you can be sure I will act on it! :slight_smile: