Tag: Economics

Obamanomics On the March

The economy contracted almost three percent in the first quarter, the worst quarter since the end of the Great Recession. Maybe it’s a blip, but that is a scary number. I’m sure the Obama defenders will blame it on the cold weather but I’m pretty sure we had cold weather in the past. Eventually, this will be Bush’s fault. Or “austerity”.

This is horrible news, whatever your politics. While I oppose Obama, I want the country to do well. But we may be staring down a double dip recession.

Update: Before the liberal spin master get in, keep in mind that we just remade a quarter of our economy with Obamacare. Seven million people changed insurance or bought insurance. The idea that this has nothing to do with the GDP strain credulity.

The Latest Triumph of Obamanomics

You remember the “Summer of Recovery”? That was back in 2010 when the combination of fiscal stimulus and Obama frisson was supposed to get the economy moving again. Since then, we’ve been waiting and waiting for a full recovery, bumbling along at 2% growth with job creation barely keeping up with population. But I’m sure an economic boom is just around …


The Commerce Department said on Thursday that the nation’s overall output shrank at an annual rate of 1 percent in the first three months of the year, revising downward its initial estimate from late April, which showed a very slight gain for the period. It is the first quarter in three years in which the nation’s output of goods and services has contracted.

The figures are bad news for the White House as well as for Democrats running for Congress in November’s midterm elections. Although there’s still time for growth to rebound before then — and recent data on hiring has been more encouraging — little room remains on the runway for an economic takeoff this year.

This is being blamed on the unusually cold winter. That’s not a ridiculous explanation but it’s not enough to explain everything. Gross Domestic Income fell a whopping 2.3% which could indicate that further revisions will be even worse.

Yeah, I know. Austerity! Republicans! Libertarians! Uh … no:

It has been six years since the financial crisis. Federal government spending is still around 21 percent of GDP, up from 19 percent in 2007, and the Federal Reserve still has a very expansive monetary policy. Under those circumstances, a quarter of negative growth is pretty unsettling.

Exactly. The “austerity” we’ve enjoyed has been a huge increase in FY2009 followed by flat spending. It has included a massive quantitative easement from the Fed. You simply can not look at all that and call it austerity, no matter how much Paul Krugman stamps his foot.

The “Do Nothing” Congress Cuts Both Ways

We’ve been hearing for the last couple of years that the Republican congress won’t do anything (with “do anything” defined as “unilaterally cave in to the President’s entire agenda”). But doing nothing cuts both ways. It’s not like the Democrats are proposing a raft of great laws that would save our country. And in many cases, they are opposing them for stupid reasons:

A high-profile Senate bill that would dismantle Fannie Mae and Freddie Mac suffered a blow this week when key Democrats decided not to support the legislation, likely wiping out its chances of advancing to the floor this year.

The bill has enough votes to pass the Senate Banking Committee, which plans to consider the measure next week. But the bill’s sponsors — Sens. Tim Johnson (D-S.D.) and Mike Crapo ­(R-Idaho) — failed to win over the committee’s liberal Democrats and secure a larger majority.

Without more support, Majority Leader Harry M. Reid (D-Nev.) is unlikely to move the measure to the full chamber, and its chances of gaining traction next year are unclear. The setback comes despite bipartisan support for the bill on the committee and suggests that the effort to revamp the nation’s housing finance system could stretch on for years.

The bill would gradually unwind these two behemoths and shift the risk back to the private sector, where it belongs. This has run into a firestorm of opposition from groups that want the GSE’s to loan more money to low-income groups as well as people who want to re-inflate the mortgage market and the derivatives market.

The liberal intelligentsia had been desperately trying to pretend that Fannie and Freddie — who controlled the lion’s share of the imploded mortgage market — had nothing to do with the financial crisis. They are wrong about this, cherry-picking the data that support their cause. But they are wrong on a more fundamental level as well.

The fundamental error is that encouraging poor people to buy houses is a bad thing. Not just bad for the economy, not just bad for the markets, not just bad for any of the reasons usually cited. It is bad for poor people. Buying a house for anyone is a marginal investment at best, unless it comes with a lot of land. I bought my house because I value the things that come with home ownership — stability, responsibility, possession — and because it is a form of forced savings. I also have a good credit rating so my loan was cheap. But unless you’re investing in rental properties, a home is a solid investment, not a great one. And it’s a terrible investment if you have poor credit, move a lot, have a shaky job situation or aren’t very good with money — traits that are very common among the poor.

Look at what happened during the financial crisis. Thanks to efforts to get the poor to buy houses, they had almost all of their wealth tied up in housing. When the bubble popped, it destroyed what little wealth the poor had:

The chart above splits U.S. homeowners into net-worth quintiles, and plots housing as a fraction of all assets for each quintile in 2007. For the poorest homeowners, houses were by far the most important thing they owned going into the Great Recession, making up almost 80 percent of their total assets. Another way of saying this is that the poor held very few financial assets such as stocks, bonds or mutual funds. On the other hand, housing was a much smaller part of the overall asset portfolios of the richest households — less than 20 percent.

So the poor were much more vulnerable to a crash in housing prices in 2007 than the rich were. In fact, it was even worse for the poor because they used so much debt to purchase their homes. Above, we also plot mortgage balance as a fraction of home value in 2007 for each of the net-worth quintiles. For example, if a household owned a home worth $100,000 and had a mortgage of $80,000, then the household would have a mortgage balance that was 80 percent of the home’s value.

Leverage can be a very dangerous thing for borrowers when their home values plummet. Continuing the example above, if someone has a $80,000 mortgage on a $100,000 home, and the home drops in value by 20 percent to $80,000, then the homeowner loses $20,000, or 100 percent of their equity in the home. Home prices fell 20 percent, but the homeowner lost 100 percent. That’s the effect of leverage!

The so-called “ownership society” encouraged this behavior under the belief that housing was a magical money maker that would turn poor people into rich people. Rich people own homes; therefore owning homes must make your rich. But it doesn’t and it never will. Owning a house is not a path to sudden riches. It is, at best, a sound investment if you have the means, the stability and the discipline.

Not that Fannie and Freddie have learned from their experiment in sucking away what little wealth the poor have. Just today, the overseer of the GSE’s announced that he wants to expand their role in the markets, to encourage people to buy houses and to not lower the caps on their mortgages. This is being done to “stimulate the economy”. But we’ve been down this road before. The only things that got stimulated were Wall Street crooks and mortgage sharks. Everyone else ended up getting “stimulated” right up the keister.

Enough. End this madness. End the GSE’s. Let’s not go down that road again thinking that this time, it will be different. If the President and his sycophantic media want Congress to “do something” I suggest they start right here with a bi-partisan effort to finally end this failed experiment.

At Least He’s Honest About It

Building on Alex’s post on income inequality, I note that Mathew Yglesias published this over at Vox. Yglesis advocates for raising the top marginal rate on salaries above $10 million to 90% and the inheritance tax of estates over $10 million to 90%. His argument is that the Laffer Curve is largely bunk and there is no evidence that raising incomes that high would seriously hurt the economy, at least if it were confined to the upper strata of income.

Let’s put aside a few things. Let’s put aside that France tried to raise the top tax rate to 75% and it was a disaster. Let’s ignore that even when that marginal tax rate was 97%, it didn’t stop rich people from being rich*. Let’s ignore that while many economists dispute where the peak of the Laffer Curve is, no one thinks its near 90% or doesn’t exist. Let’s ignore that when you add in state, local and Medicare taxes, this would mean a marginal rate of over 100%. Let’s ignore that previous efforts to tax the evil stinking rich have often resulted in a game of rich person whack-a-mole where they just get income from different sources. In the 90’s, the Democrats put a cap on the amount of CEO pay that could be categorized as a business expense. The result was that CEO’s started getting paid in stock options, which contributed directly to the tech bubble.

No, we’ll put Yglesias’ economic illiteracy aside. Instead I want to applaud him. Because he admits that a 90% marginal rate will bring in little if any revenue. What he argues is that this would stop corporations from paying such huge salaries and therefore pay more to lower level employees. Or something. And high taxes on estates would stop people from inheriting massive wealth. Or something. His argument is that this would address growing income inequality. No word on whether he also thinks cutting the legs off of tall people would help short people dunk basketballs.

I’ve said before that raising taxes on the wealthy isn’t really about revenue. Increases in the marginal rate would increase revenues, although not as much as tax reform would. But that’s a side effect. A huge amount of the motivation for raising taxes on the rich is redistribution. As Barack Obama himself said, it’s about spreading the wealth around. So at least Yglesias is admitting what we all know.

Of course, this won’t go anywhere. Despite the best efforts of the wealth redistributors, the American people don’t want a 90% marginal rate. There is broad support for the rich to pay more, but not at this level. So, in the end, Vox is running an article that is just about as grounded in reality as the most fantastic libertarian fantasy.

(*It’s a funny thing. Jjust as wealth and income inequality are coming back into vogue thanks to Picketty’s new book, I am growing more and more suspicious of it. I am beginning to suspect that the “equality” of the mid-20th-century was a product of how we measure it, not a real phenomenon. Rich people don’t get rich by letting the government take their money; they find ways to shelter it. The 97% marginal tax rate we enjoyed until the 1960’s came with a lot of shelters so that very few people actually paid it — and often it was someone who’d made a new fortune and was trying to raise themselves up into the ranks of the rich. The 97% rate was mainly a way of beating down rising stars so that the rich would remain pure and blue-blooded.

Liberals understand this to some extent. When conservatives point out that capital gains revenue boomed after the tax rate cut, they correctly reply that the taxes reaped from ordinary income fell by a greater amount. The rich just changed how they were getting paid. I suspect the supposed happy valley of income equality was similar but don’t have the resources to do the research.

I am also growing dubious of using income and wealth as pure measures of inequality. It makes things convenient for economists, but doesn’t necessarily tie to reality. Housing and food, relative to income, are much cheaper now for poor and middle class people than they used to be. Most of the working class can now afford homes; they used to almost all rent. Measures of leisure time show that the poor and middle class have more of it than they used to. Just to take examples from my own family: one set of grandparents were middle class. They had a maid, as almost everyone in their social stratum did. No one has maids anymore because they are paid too much (and, it should be noted, other opportunities have opened up to the working class). On the flip side, my other grandfather worked two jobs and had a working farm just to stay functionally poor.

I suspect we are focusing too much on money measures and not enough one thing in life that really matters: time. This is one of the big reasons that I suspect Picketty’s trendy book — like Das Kapital before it — will eventually be unravelled by better minds.)

The CBO Thorn in Obama’s Side

Fresh off their recent report on Obamacare that predicted a decline in the workforce of 2.5 million (partially as a result of employer cutbacks, mostly as a result of people leaving jobs due to high effective marginal rates), the CBO today issued a report on the effect of raising the minimum wage.

Raising the U.S. minimum wage would lead to the loss of about half a million jobs by late 2016 but lift almost a million Americans out of poverty, the Congressional Budget Office forecast in a report on Tuesday that reignited debate over one of President Barack Obama’s top priorities this year.

Buoyed by polls showing three-quarters of Americans in favor of a minimum wage hike, Obama and his fellow Democrats advocate raising the minimum hourly wage to $10.10 from the current $7.25 in a move to boost the stagnant wages of millions of low-income workers.

In the long term, Democrats also want to tie future minimum wage increases to inflation, avoiding the legislative fights over wages for lower-paying jobs.

The political flacks at the White House and AFL-CIO are disputing this, claiming they know more about economics than the CBO does. In fact, much of the Left Wing has declared the debate on minimum wage and employment to be over. Last week, Bill Maher said the idea that raising the minimum wage cost jobs was completely discredited. This isn’t, of course, reflective of the view of any, you know, economists. The most they will argue — as Krugman has — is that the effect is small. But no honest economist will argue that the law of supply and demand is magically suspended when it comes to low-wage jobs.

In fact, the connection between the minimum wage and unemployment is so natural that one of the honest liberals, Matt Yglesias, had this to say:

If the White House genuinely believes that a hike to $10.10 would have zero negative impact on job creation, then the White House is probably proposing too low a number. The outcome that the CBO is forecasting—an outcome where you get a small amount of disemployment that’s vastly outweighed by the increase in income among low-wage families writ large—is the outcome that you want. If $10.10 an hour would raise incomes and cost zero jobs, then why not go up to $11 and raise incomes even more at the cost of a little bit of disemployment?

Yglesias is uncorking the argument many conservative have: if raising the minimum wage has “little to no impact” on unemployment, why not raise it to $20 or $50 an hour? If you can’t countenance such hikes, then you are implicitly admitting that raising the minimum wage costs jobs.

Anyone who is honest about the issue will admit that there’s a tradeoff: how many fewer workers are you willing to put up with for an increase in the wages of those still employed? I would argue, given the present labor market, that the number is zero; that we should, at minimum, hold off until the labor markets recover (if that ever happens). Of course, in a recovered labor market, wages will go up anyway because employees will be scarcer than jobs.

Supporters of the minimum wage like to point out that the low minimum wage means we are subsidizing jobs at places like Walmart, where some employees qualify for food stamps. This is circular logic, of course. Food stamps, Medicaid, EITC — these were expanded specifically to give access to the working poor. You can’t then turn around and complain that that more people are taking advantage of them when that was the entire point.

But setting that aside: isn’t having subsidized jobs for four million people better than having unsubsidized jobs for two million? Someone who has job — even it’s a bad one — has an opportunity to prove themselves, to advance, to aspire. But someone who doesn’t have a job has no opportunities and no hope.

We’ve seen this kind of snobbery before and we’ve seen it hurt poor people before. Building codes are designed to outlaw cheap apartments — and then we wonder why poor people can’t find anywhere to live. Health insurance regulations are designed to outlaw cheap insurance — and then we wonder why millions aren’t insured. And now we want to outlaw low-paying jobs. And then we’ll wonder why low-skill workers can’t find employment.

It’s easy for someone who already has a job to say that no one should have to take a job at Walmart for $7.25 an hour. It’s a lot harder to say that when you have no prospects and you’re falling further and further behind the rest of the country. For many people, that “bad” job can be a lifeline.

I sometimes think that Stephen Bainbridge is right when he says we are headed toward a society like Jerry Pournelle’s CoDominium where we have one group of citizens totally dependent on government and another who work. Only in our CoDominium, the welfare recipients get to vote.

We need to make sure everybody has skin in the game, not just the top few percent. Everybody ought to vote and everybody ought to pay taxes.

And everyone ought to work, too. Even it’s just part-time and pays a shit wage, no able-bodied adult should go through a week without putting at least a few hours into the grindstone (preferably around 40, but at least more than 0).

I’m somewhat supportive of programs that help the working poor — that give them the means to bring themselves up out of poverty. The minimum wage is not that. It benefits some working poor while putting other completely out of work at a time when jobs are very very hard to come by.

Making progress easier for low-wage workers is one thing — we’ve talked about the guaranteed income and negative income tax proposals circulating around. But throwing 500,000 more people into the jobless hopeless class is just a recipe for disaster.

The numbers are in. And it’s time to shelve this bad idea.

The State of Inequality

Rumors are that the President’s taxpayer-funded political speech State of the Union Address will focus on rising income and wealth inequality in the United States. As with almost everything this Administration does, I think this is misguided.

First, at least part of the problem of inequality is social. Poor people are much more likely to get divorced, much more likely to have children out of wedlock, much more likely to drop out of high school, much more likely to engage in criminal activity and more likely to have substance abuse problems. Wealthy people are far less likely to have those problems. The divorce problem is especially important because inequality is usually measured per household and having split households means split wealth. Inequality in America is as much a reflection of a social divide as it is an economic one.

Of course, it’s difficult to untangle social and economic problems: growing up in poverty can make it harder to persevere in school, for example. But I still think poverty is, to some extent, a symptom of larger social diseases. Treating those social diseases — through school choice, through ending the drug war, establishing free enterprise zones — would be a much more productive approach than throwing money at it.

But second, I think the idea of “inequality” is a fundamentally flawed way of looking at things. The problem with America is not that Bill Gates is making too much money. The problem is that millions of people are unemployed or marginally employed and that trillions of dollar of their wealth was eradicated by a government-supported real estate bubble (and trillions more will soon vanish in a government-supported education bubble). When people talk about “inequality”, that tends to devolve to the misguided idea of eating the rich. We should instead be focusing more on poverty, on unemployment and on education. Tearing down Bill Gates will help no one. We need to lift everyone else up so that they can aspire to be Bill Gates.

But how do we do that? Well, we can start by not following Democratic prescriptions. As I noted in an earlier post, Democrat-controlled California has the most massive income inequality in the nation, one so bad that pundits are calling it a “liberal apartheid”. Today, there was a report that the District of Columbia, an exclusively Democratic fiefdom, also suffers from catastrophic inequality, mostly because of the extraordinary gains in wealth for the areas in and around DC where government employees and contractors live and work.

And that’s the rub. Liberals think inequality is a result of not having a high enough minimum wage (and Obama, as Rich noted, just raised federal contract minimum wages by fiat). But we’ve had lower inequality with a lower minimum wage. California has a high minimum wage and massive inequality. They also think it’s a result of taxes being too low on the rich. But the rich are paying almost all the income taxes already. The lower classes pay payroll taxes, but almost no income tax. They think it’s because we’re not doing enough. But we’ve poured trillions into the War on Poverty (and, it should be noted, that many measures of inequality and poverty exclude this kind of federal aid. So liberals are ignoring the existing impact of anti-poverty programs in their call for more of the same).

Frankly, if you want to know why inequality is rising, look no further than the solutions Obama will propose tonight. Doubtless, we will get another “jobs bill”. This bill will shovel more money to rich connected friends of politicians while doing almost nothing to create sustainable job growth. He will doubtless push for a hike in the federal minimum wage, which will likely increase unemployment among the people who are the poorest. He will gloss over the federally-fueled housing bubble and bailout that poured billions into Wall Street while bankrupting the rest of us. He will doubtless ignore the regulatory capture that cripples small businesses while pouring wealth into those with armies of lobbyists. I am dubious that we will hear anything about the critical need to reform the tax and regulatory systems that are paralyzing our businesses.

In short, I think that Washington and the policies it has pursued for the last 15 years is the major contributor to inequality. And I think it is likely that we will hear tonight is a clarion call for more of the same. We will continue to push people down while claiming we’re helping them. We’ll continue to give money to special interests while pretending we’re fighting them. We will continue to do everything but the one thing government needs to do if it ever really wants to combat income and wealth inequality:

Stop creating it.

Geithner vs. S&P


Former U.S. Treasury Secretary Timothy Geithner angrily warned the chairman of Standard & Poor’s parent that the rating agency would be held accountable for its 2011 decision to strip the United States of its coveted “triple-A” rating, a new court filing shows.

Harold McGraw, the chairman of McGraw-Hill Financial Inc , made the statement in a declaration filed by S&P on Monday, as it defends against the government’s $5 billion fraud lawsuit over its rating practices prior to the 2008 financial crisis.

McGraw said he returned a call from Geithner on Aug. 8, 2011, three days after S&P cut the U.S. credit rating to “AA-plus,” and that Geithner told him “you are accountable” for an alleged “huge error” in S&P’s work.

“He said that ‘you have done an enormous disservice to yourselves and to your country,'” and that S&P’s conduct would be “looked at very carefully,” McGraw said. “Such behavior could not occur, he said, without a response from the government.”

First, I should note one thing: Geithner was right, as it happened. S&P had a made a $2 trillion error in their calculations. They stand by their rating, citing the bad environment in Washington and bad budget outlook.

Second, the threat itself doesn’t matter too much to me. I would expect any Treasury Secretary, faced with a potential downgrade, to scream blue murder and/or try to talk the rating agency out of it.

Third, the $5 billion lawsuit against S&P is long overdue. It is now well know that the ratings agencies avoided looking too deep into the CDO’s, in particular, giving AAA ratings to what were, in reality, massive piles of high-risk mortgages. It is documented that auditors at the agencies were told not to look into the securities they were rating lest the lucrative derivative market dry up. People like John Paulson and Michael Burry, who did their homework, made massive fortunes betting that the towering piles of shit S&P was giving AAA ratings to were going to fall over. And men like Howie Hubler, who didn’t and relied on S&P, lost billions inadvertently betting piles of mortgages against themselves.

So, Geithner was right about S&P, complaining about the downgrade was reasonable and S&P are a bunch of crooks. So nothing to see here, right?


Here’s the problem: the lawsuit came after S&P’s downgrade. And Moody’s and Fitch, who were just as complicit in the meltdown as S&P, have not been sued. When you throw into this mix that Mark Zandi, one of the founders of Moody’s and someone who completely missed the real estate bubble, has been spending the last five years peddling Obamanomics, making bullshit economic projections to support Obama’s policies and doing everything he can to support their Keynesian nonsense … well, it does start to look a bit suspicious, doesn’t it?

Obama has done very little to punish the high-end crooks for their part in the meltdown. I think we’re beginning to see why. Because most of them have played ball with the Administration. S&P hasn’t. And so, for once and for entirely the wrong reasons, the Administration is doing the right thing.

No, the scandal is not that S&P is being sued. The scandal is that everyone else isn’t. Because as far as this Administration is concerned, you can lie to investors and creditors; you can fail to do anything approaching your job; you can bilk people out of billions. But don’t you dare contradict the Administration on economics. That’s serious.

One Day, We Will Wish We Were Canada

I know the Left likes to mock the Heritage Foundation’s Economic Freedom Index as some of Koch Brothers-libertarian-Rush Limbaugh-neocon conspiracy garbage. But, as I’ve argued before, if you want to start looking at the countries that are doing well economically, it’s a good place to start. Almost every country at the top of the rankings is doing well; almost every country toward the bottom is doing poorly. Over the years that Heritage has been tracking the index, we’ve been able to see economic freedom and economic success going hand in hand. Canada and Sweden, in particular, have seen both rising economic freedom and improving economic prospects.

(Lately, it’s become common to mock the index because Mauritius is in the top ten. I don’t fathom that criticism at all. Mauritius is one of the wealthiest countries in Africa and the only one that got there by virtue of something other than sitting on a giant pile of oil. It is one of the best run countries on the continent and one of the only ones with a real middle class. If you had to pick a place to live in Africa, you could pick worse places than Mauritius. Just about everywhere in Africa is worse than Mauritius.)

Heritage has their latest report out and most of the world is moving forward toward freer economies, which is great news for them and for us. A prosperous world is one we can do more business with. But gaze at the top ten and you’ll notice something missing.

Us. The United States finally dropped out of the top ten, with a huge one-year decline in the freedom index. We were passed by Estonia and Ireland, which surged ahead.

(I particularly love that they were passed by those two countries as they are the source of much Krugman bullshit. He has blasted Estonia for practicing austerity because they cut spending during the recession (actual cuts, not pretend cuts). Back in reality, Estonia’s economy is growing, unemployment is extremely high but falling and their credit was upgraded last year. Krugman cites Ireland as proof that the “austerians” were wrong because their economy did poorly after they initially took some good steps. He conveniently ignores the ill-advised bank bailout that succeeded those good steps.)

But those countries didn’t just pass us. We fell. Another half point on the index, the continuation of six-point plunge since 2006, mainly because of rising regulation, rising government spending, increasing corruption and losses of property rights.

While I know that sounds like a bunch of conservative issues, it really isn’t. The declining economic freedom of this country should concern liberals too. Look at the countries that are ahead of us. Many have universal healthcare and effective regulation. Some are socially liberal. Remember when Bush won the 2004 election and all the liberals said they were going to secede and form New Canada (this being when talk of secession was a legitimate expression of frustration instead of crazy person talk)? Well, Canada. Damned Canada. Fucking socialized-medicine-having, hooker-legalizing, syrup-drinking, hockey-playing, don’t-know-how-to-say-the-word-about Canada is now way ahead of us on the economic freedom index and still moving up. Economic freedom doesn’t have to mean living in the kind of world Bill Maher imagines conservatives want: a Social Darwinist dystopia with polluted rivers, no gays and bookstores only selling the Bible. We could be Canada!

But it’s more than that. The things that are driving our economic freedom down, as Alex has argued many times, are the same things driving a growing wedge of inequality in this country. Is it an accident that inequality has grown as the economic freedom index has fallen? The burgeoning wealth and power of the ruling class — wether you call them politicians or the 1% or the Zucchini People — can be traced to things like crony capitalism, regulatory capture, corruption and inordinate uncontrolled spending pouring into the hands of wealthy interests. Businesses spend more time and energy working Washington regulators and lobbyists than they do hiring people to build things. The iron triangle of politicians, lobbyists and corporatists pass down “regulations” that strangle small businesses. But somehow, we still end up with half of West Virginia drinking bottled water because a toxic chemical tank was built upstream of a water treatment plant and avoided inspection for twenty years. We end up with the worst of both worlds: the crushing burden of byzantine legislation without the benefit of improved safety.

The Economic Freedom Index isn’t perfect. But it is an effective tool for getting a snapshot of what an economy is doing and how bright its future is. Our is getting less free. Not “less free for evil rich people”. Less free for all of us. And we will never really get back to a sound economy until that stops.

A Living Wage! … But Not For You

Liberal pundits and advocates are constantly talking about a “living wage”. The last few years have a been a constant drumbeat about how we need to raise the minimum wage, with some now advocating that Obama should just bypass Congress and do it by executive fiat. It’s even gotten to the point where America’s Dumbest Intellectual deceitfully disputes the basic economic consensus that increasing the minimum wage increases unemployment.

(That last part is not complicated. It’s called the Law of Supply and Demand. There’s room to argue about how much unemployment minimum wage hikes create. But to argue that that amount is zero requires some intellectual stretching to make the labor market behave differently than every other market in the world. This is particularly relevant given our current problem with long-term unemployment and the recent tendency of employers to increase productivity by getting more out of existing employees as opposed to hiring new ones.)

Today, many fast food workers are effectively striking to demand higher wages. And more power to them. If they want higher wages, they can demand them. They should be aware that there are many who will take those jobs at the current wages. And raising fast food worker wages will mainly transfer wealth from … um … the middle class who will pay more for their burgers or make less from franchises.

In the end, today’s strikes are less about benefiting workers than about increasing union membership. If fast food workers want higher wages, what they really need is job growth to create demand for workers and a middle class able to pay more for Big Macs. But, of course, to do that, they’d have to stop voting for people like Barack Obama (not withstanding November’s slightly less crappy job numbers).

I’m drifting from the point.

Vice has an amazing report this week on how liberal publications flog for a living wage on the backs of … unpaid or minimally paid interns. Keep in mind, this is coming from a liberal perspective, so you’ll excuse the Left Wing petito principii:

America’s leading liberal periodicals are aware of the obstacles to advancement the less privileged face in our decidedly not meritocratic society. Indeed, they often provide excellent coverage of the class war, from union-busting at Walmart to the fight for a living wage at fast-food chains. At the same time, though, many of them are exploiting workers in a way that would make corporate America proud: relabeling entry-level employees “interns” and “fellows” in order to dance around US labor laws.

Paying people little to nothing because you can—a practice aided by the awfulness of the job market and the desperation of people trying to make it in “glamour” industries like journalism—is both exploitive and discriminatory, but many good liberals do not appear to recognize it as such, even as they decry that behavior elsewhere.

What follows is so incredibly delicious I will not excerpt it for you. You have to go to Vice’s article and taste the sweet sweet hypocrisy for yourself. OK, just one bit, about America’s Smallest Communist:

Robert Reich served as labor secretary under Bill Clinton and is outspoken in his support for a living wage. But when I asked him about the trend of entry-level jobs being relabeled “internships” and being stripped of the pay, benefits, and legal rights they once offered recent college grads (by some estimates, half of the estimated 1.5 million interns in America are unpaid), he professed ignorance.

“This is not a topic I’ve given much thought,” said Reich.

Reich is a busy guy, but he should think about the issue more. His political advocacy group, Common Cause, is only one of the organizations he has a hand in that relies on free or near-free labor. In a recent listing, The American Prospect, a magazine founded by Reich and other veterans of the Clinton administration, announced it was looking for editorial interns to assist “with fact-checking and research.” The interns will be “encouraged to contribute editorially and participate in meetings in addition to pursuing their own projects.”

Sounds good, but, “This is a full-time internship and comes with a $100 weekly stipend,” according to the listing. That comes to about $2.50 an hour, or “not nothing” if you are a glass-half-full type. However, there is a catch: “Interns who receive full course credit are ineligible for the weekly stipend.”

Mother Jones even told their workers to apply for food stamps while working on articles decrying Walmart for … having workers who get food stamps.

This does not surprise me at all. I mean at all. Megan McArdle wrote many years ago about working for Ralph Nader’s organization and how they assigned her some of the worst and poorest areas of town to solicit donations from. They did this so that they could fire her for lack of collections and skip paying half her wages. A similar scam — hiring people at less than minimum wage on the promise of a balloon payment, then firing them before the balloon is due — was behind ACORN’s voter registration fraud. The conservative media missed the real scandal. ACORN was bound by law to turn in the bogus registration, which will promptly rejected. But they existed in the first place because ACORN volunteers were desperate to not get fired for a lack of registrations.

Doubtless, many of these organizations will say they are on a shoestring. But everyone is on a shoestring these days. Small business owners aren’t exactly rolling naked in stacks of cash. This does not, however, exempt them from paying minimum wage and respecting worker rights. No, this is standard issue liberalism: claim that your cause is so just and righteous that the rules should not apply to you.

(In fact, I’m open to a debate about whether unpaid internships should be legal at all. It’s clear that the system is being abused.)

Mother Jones, in response to this, increased their payments to interns. Other liberal orgs are changing policy or maintaining a stony silence. But it’s telling that some of the biggest liberals in the world think a living wage should be guaranteed … for other people.

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