Friday, March 4, 2016

Diverting minimum wage dollars -- Perfect labor market competition? -- Re-framinig collective bargaining rights -- SS TF

If a minimum wage hike is priced right it may bring in more dollars overall to employees for fewer hours of work -- but the hours of employment picture doesn't end there.  Those extra dollars will be diverted from purchases that would have been made by higher wage folks to buying decisions now made by lower wage earners.

If lower wage people make exactly the same buying decisions as the higher, then, the overall effect will be fewer min wage employees making higher end purchases. 

In practice, consumers tend to aim their purchases somewhere more towards vendors who pay the same wage spectrum.  Poor people buy other poor people's second-hand cars -- used car lot too pricey.  Middle wage people buy off the used car lot.  Higher wages put you in the showroom.

1/11/14, NYT article "The Vicious Circle of Income Inequality" by Professor Robert H. Frank of Cornell: " .. higher incomes of top earners have been shifting consumer demand in favor of goods whose value stems from the talents of other top earners. ... as the rich get richer, the talented people they patronize get richer, too.  Their spending, in turn, increases the incomes of other elite practitioners, and so on."

Upshot, a higher minimum wage – if priced right – should predict a few more customers at Mickey D’s (likely that’s what Card and Krueger found in their seminal 1992 study) and fewer jobs at Olive Garden (studying fast food with “giant” 33% labor costs no less).  There may be job loss alright; but everybody is probably looking in the wrong place.
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The idea that more progressive states (WA, OR, CA, NV, IL, MD?) could individually make union busting a felony -- make prohibitions against coercion in the labor market actually enforceable -- doesn't seem to be getting much traction -- though it is so simple and so vital. There's no legal bar to states adding to federal labor protections that I know of -- California's labor laws for instance are stricter than Uncle Sam's.

Maybe it's more a matter of the culture. We are just so used to looking upon the firing of organizers and joiners as civil matters -- un-enforced by laughable-at remedies -- rather than as criminal matters that we just can't shake off the habit.

Try to manipulate or coerce markets for goods or services (try to take a movie in the movies and tell them you were only kidding -- see you in a couple of years, for real) and it is big jail time. But in the most important market of all -- that decides the personal lives and political influence of the broad majority of Americans -- coercion of employees is just our (not any other modern economy's or culture's) way of life.

Union racketeering does less harm to pocketbooks (maybe no political damage at all) than eliminating unions altogether. But, racketeers are identifiable bad guys, leg breaking hoods. Union busters happen to be the pillars of the community -- really are -- who organize and operate our economy. That image may help sneak them by our usual sense of outrage. Time to get past outmoded habitudes (no sic) and flawed culture and to get logical about the economic and politically ruinous truth of union busting. 
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Last little tasty: why would we build a Social Security retirement 
Trust Fund (TF) if we did not intend to deplete it at some point?  Possible real usefulness: to cover any temporary shortfall in FICA revenue while Congress gets around to upping FICA or cutting benefits.  From that standpoint, today’s TF is equipped for about a 20 year long “emergency.”

Would it make sense to maintain today’s giant TF at today’s level forever – “slush fund”? – if income and outgo varied back and forth year to year but basically balanced out?  Even less sense to keep inflating the TF?  That would just define a permanent mechanism for converting FICA revenue – supposedly being saved for the future – into cash for current expenses that would otherwise be funded with income tax.

No fear.  By the time the TF is running out it will be paying 25% of SS retirement – with income tax – or as much as $250 billion (quarter of a trillion!) a year.  Just lower the income tax by the same amount we hike the FICA tax.  Without further ado: by then per capita income should be up 20-30% (along with whatever free gifts of technology).  What me worry?

Ultimately I think it boils down to this: If the trust fund is really "savings" to cover the retirement of one generation -- that's all it can do, no? -- WHERE ARE ALL THE TRUST FUNDS FOR ALL THE SUBSEQUENT GENERATIONS? 

Maybe the real solution (to frozen-thinking, that we have to use the trust fund the way it was un-thinkingly designed) is to start another trust fund for the next generation -- and pay for it with the same dollars we would have used to cash the trust fund bonds. 

IOW, raise the FICA tax to extract as much money as the income tax would have been raised to cash the bonds. This will go down great with Republicans since FICA money is extracted from the bottom 90% -- and 40% (!) of income tax is extracted from the top 10%. Can't have that -- "47%" Mitt and the Donald will go along with that.

Of course we could cover bond cashing with income tax by printing money -- can't run a deficit with FICA. OTH, with the new trust fund you could say we are printing the bonds. :-)