Big Government

The Minimum Wage Debate and Tax Incentives

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Originally when I started over at Chicago Boyz I used to write regularly about tax policy. I haven’t written as much lately on that topic because the news has been completely dispiriting… at every turn it seems that the Federal, State and Local governments have taken positions to make the system more complex, confusing, and dysfunctional.

The goal of a tax policy should be to:
1. Achieve the revenue goals that they set out to meet
2. Do so in a way that has causes the least amount of distortions to the economy

Recently the idea of “fixing” our tax policies and incentives, for me at least, is aligned with recent discussions on the idea of raising the minimum wage. The minimum wage is $7.25 / hour, although this varies with state and local laws as summarized here. A suburb in Seattle, near the Seattle-Tacoma airport (Sea-Tac), recently passed an ordinance to raise the minimum wage to $15 / hour. This ordinance is a bit more clever than most, since the airport is unlikely to close or take significant actions due to the immense capital costs and constraints associated with doing so, and has a strong public element (politicians can just try to pass the costs on to air travelers).

These same discussions come up in Chicago, as fast food workers also have had some (small) demonstrations to try to raise the minimum wage to $15 / hour. While their campaign has sputtered out, it will likely re-surface and be championed by our governor.

The obvious difficulty with raising the minimum wage is that employers are not sitting ducks. There are many low wage workers in River North, for instance, working in bars, restaurants, cleaning services, and in various security related occupations (virtually every building has a set of doormen). If you doubled the minimum wage, for instance, all of these businesses and institutions would immediately embark on a host of labor saving initiatives and automation efforts. I am not an expert in these sorts of automation experts but can imagine people being replaced by computers, call centers handling service, and moving to self-service for customers in other instances. It is highly unlikely that they would just attempt to pass on the price increases and keep the same level of staffing; that would be economic suicide, especially with their competitors scrambling to reduce their labor expenses. Efforts that could not be automated would rise in price, which would likewise discourage consumption, until an equilibrium was reached.

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How A Simple Train System Lays Bare Our Impending Decline

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Recently I was riding on the Metra, the commuter rail system that connects the suburbs to downtown Chicago.  I picked up “On the Bi-Level”, the flyer that Metra management makes available to riders and was browsing through it when I came upon this innocuous sounding statement:

I certainly will not argue that Metra is without challenges.  Perhaps the biggest challenge, and one that will impact many of our plans, is our needs for more capital money to invest in our system.  We estimate Metra will need about $9.7 billion over the next decade to achieve a state of good repair on the system, and we expect to receive about a fourth of that amount from traditional federal and state sources.  Riders need to understand that fares help us cover our operating costs but have never been a significant source for capital expenses – we must rely on Washington and Springfield for that funding.

Within the utility community there is a concept called “generation equity”.  This implies that you need to spread the burden of replacement and renovation across the life cycle of users, rather than hitting them all on the first riders, such as in the case of a train line.  On the other hand, you cannot just ignore ongoing capital costs and let the system run into ruin by paying the minimal upkeep costs every year.


In this article, Metra lays bare the facts that:

  • Fare costs (riders) only “help” them cover their operating costs
  • Funding from other sources (and debt) helps them cover the rest of their operating costs
  • Then they rely on largess from the state or Federal governments for about a fourth of their capital costs
  • And who knows where they are going to get the rest of the funds for capital replacement


In fact, it would be impossible for Metra to re-build the train lines that they have today in the current regulatory and legal environment.  Permits, lawyers, litigation, politically favored contractors, and a welter of archaic tools and practices would make the costs impossibly high and the deadlines incredibly long.  By “capital” costs, they are generally talking about replacing bridges, stations and sections of existing track rather than “true” expansion, although they do occasionally add some incremental lines or stations.


It is important to understand that things have gotten more EXPENSIVE but they haven’t gotten BETTER.  The infrastructure that we take for granted might as well have been built by the ancient Egyptians given how herculean the task would be to replace them.  Americans will never see another major dam built in the USA and likely few to no additional incremental nuclear or coal plants in the next 25 years.  Even major transmission lines are going to be few and far between, which will only be built because it is absolutely necessary to get electricity to new population centers.  This is all due to the layers of process and regulations and lawyers that we have overlaid atop the simplest tasks, and you can see the contrast when you go to China and see cities being built overnight. 


At some point we are either going to need to radically re-structure how we build and pay for things or go to a completely private system where you pay for what you receive in terms of capacity, reliability and performance.  States and cities that make it impossibly expensive to build and expand will inevitably suffer relative to other locations that are freer in terms of rules and regulations, unless (as is likely) the entire US is burdened with Federal regulations that make it impossible to escape this yoke.


Cross posted at LITGM

“Three things to keep in mind about Obamacare”

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A great post by J. E. Dyer:

1. The problem with Obamacare is that it fundamentally changes the relationship of government to the people. The change is wholly malign. There is no way to operate the Obamacare system and also force the government to respect the people’s rights. Obamacare will, at every step, increase the risk at which government holds our rights.
 
We’re already seeing that with the roll-out, which has promptly violated the president’s best-known and most categorical promises an indication of his complete lack of respect for us as well as the people’s rights to decide what to do with their own property (in this case, their earnings), and to execute private contracts according to their own preferences.
 
What matters about Obamacare is that it has forced so many people to do so many things involuntarily. It will continue to do so. Obamacare is about government force, about limiting people’s options, and about constraining the people to do or not do certain things. That’s what government is about, which is why it’s what Obamacare is about. Government is incapable of being about anything else.
 
The public debate right now treats the Obamacare fiasco as if the central proposition is that taking over one-sixth of the economy is a technological challenge. The reality that matters is that government taking over the network of human decisions involved in “health care” is a moral outrage. Doing that is applying the model of regulatory force to a vast complex of human questions that have no universal, “right” answers. We might as well let the government tell us what to eat, what to wear, where to live, and what God to believe in and if Obamacare stands, our government will eventually do just that.
 
[…]
 
Quite frankly, I think the advice to Republicans to simply stand silent and “let Obamacare implode” is foolish. There is no hope of Obamacare imploding. It’s not a malformed bomb, governed by physical principles. It’s a man-made political arrangement. Its defenders will keep moving the goalposts and changing the rules to keep it on the field. It will get all the overtime it needs. The only way to defeat Obamacare is to actually counter it with a plan and a principled argument.

Read the whole thing.

Building the airplane during takeoff.

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Henry-Chao

UPDATE: The Wall Street Journal on how to fix the Obamacare crisis.

What can be done is Congress creating a new option in the form of a national health insurance charter under which insurers could design new low-cost policies free of mandated benefits imposed by ObamaCare and the 50 states that many of those losing their individual policies today surely would find attractive.

What’s the first thing the new nationally chartered insurers would do? Rush out cheap, high-deductible policies, allaying some of the resentment that the ObamaCare mandate provokes among the young, healthy and footloose affluent.

These folks could buy the minimalist coverage that (for various reasons) makes sense for them. They wouldn’t be forced to buy excessive coverage they don’t need to subsidize the old and sick.

Who knows ? Maybe Jenkins reads this blog. It’s so obvious that the solution should be apparent even to Democrats.

We are now learning that a large share of the Obamacare structure is still unbuilt. This is not the website but the guts of the system.

The revelation came out of questioning of Mr. Chao by Rep. Cory Gardner (R., Colo.). Gardner was trying to figure out how much of the IT infrastructure around the federal insurance exchange had been completed. “Well, how much do we have to build today, still? What do we need to build? 50 percent? 40 percent? 30 percent?” Chao replied, “I think it’s just an approximation—we’re probably sitting between 60 and 70 percent because we still have to build…”

Gardner replied, incredulously, “Wait, 60 or 70 percent that needs to be built, still?” Chao did not contradict Gardner, adding, “because we still have to build the payment systems to make payments to insurers in January.”

This is the guy who is the chief IT guy for CMS.

If the ability to pay the insurance companies is not yet written, how can anybody sign up ?

Gardner, a fourth time: “But the entire system is 60 to 70 percent away from being complete.” Chao: “There’s the back office systems, the accounting systems, the payment systems…they still need to be done.”

Gardner asked a fifth time: “Of those 60 to 70 percent of systems that are still being built, how are they going to be tested?”

The answer was the same way the rest was tested.

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Where do we go now ?

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I don’t want to wear out my welcome with posts but this is a topic that has interested me for many years. When I retired from practice, I spent a year at Dartmouth trying to learn how we can improve health care delivery and reduce cost without reducing quality.

The Obamacare web site now has lost its happy photo of the Obamacare girl. The fact that she is a non-citizen seems appropriate. The web site is supposed to be fixed by November 30. Will that happen ? Well, maybe not.

On Friday, the man tasked with the digital fixes said the site “remains a long way from where it needs to be” as more and more problems emerge.

“As we put new fixes in, volume is increasing, exposing new storage capacity and software application issues,” Jeff Zients told reporters on a conference call.

And at Tuesday’s White House Press Briefing, Press Secretary Jay Carney again said there was “more work to be done” on repairing HealthCare.gov.

Carney, along with Zients and other administration officials, have repeatedly said the November 30 deadline is to get the health care website working for a “vast majority” of Americans looking to enroll in the Obamacare exchanges.

So, what happens December 2, the Monday after the “glitches” are fixed ? First, they won’t be fixed. The contractor that designed the program, not just the web site, has a terrible record.

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