Tag Archives: Minimum Wage

“President Obama is too Intelligent for Republicans to Understand”: Revisiting Bad Assumption 1

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I have a friend who is a delightful person and highly intelligent.  That being said, she constantly bombards Facebook with far left wing links.  I often look at these.  As I have said before, if you can’t argue the other side of an issue, you don’t know enough to argue your own opinion.  Frequently I see the bad assumptions I talk so much about permeating these articles.  The other day I saw one such article that stood out by the audacity of its title:

The Simple Truth: President Obama is Too Intelligent for Republicans to Understand.

I highly suggest you click on this link for a moment and read this article.  I also suggest you revisit my previous blog post:

Top Ten Bad Assumptions: 1 – If we disagree, you are either mean or stupid.

I would now like to analyze this article.  The author, Allen Clifton, provides three examples which “prove” how much smarter Obama is than the Republicans.  I would like to take a close look at each of these examples.  I would then like to talk a little about how intelligent Obama really is.

Obamacare

Obamacare is Clifton’s first example of the “big picture thinking” that Republicans are too stupid to grasp because “Republicans seem unable to understand anything beyond the spoon-fed bumper sticker talking points they’re given by the GOP and the conservative media.”  Clifton states that in the long term medical rates will go down because increased preventative care will cause a reduction in more expensive treatment down the road.  Let’s assume that Clifton’s premise is true that increasing preventative care is a force that will drive down healthcare costs.  The “big picture” piece that Clifton is missing is that there are many, many forces at work in the market.  Some of the forces push costs down and some push costs up.  For example, Obamacare reimburses doctors at a significantly reduced rates compared to private insurance.  As a result, many doctors are refusing to accept patients with Obamacare.  At the same time, Obamacare enrollment is increasing.  With supply going down and demand going up, this inevitably is a force to either push costs up, or if costs may not go up because of regulations, it will cause a shortage in medical care.  Here is an article from USA Today titled “Some doctors wary of taking insurance exchange patients” explaining the situation.

I am not expert enough to say whether the forces pushing costs up or those pushing costs down will prevail.  This certainly is a subject for reasonable debate.  Clifton, however, looks at one small piece of the overall “big picture” and makes a definitive statement while ignoring the rest of the picture.  At the same time he derides Republicans for being too stupid to look at the big picture.  Ironic, isn’t it?

The Minimum Wage

Clifton’s second example of Republican stupidity is the minimum wage.  He notes that Republicans call it a job killer and refute this with this powerful argument:   “It’s not.”  I’d like to refer here to Dr. Thomas Sowell about the minimum wage:

Minimum Wage Madness:  Part 1

Minimum Wage Madness: Part 2

Minimum Wage Exploitation (if you prefer audio)

Dr. Sowell is basically stating that a minimum wage job is the bottom rung on a career ladder.  A person with no skills works for a low wage.  In the process, the person gains skills that allow him or her to earn a higher wage.  A company will only hire a worker, at minimum wage or any other wage, if the company expects that the value received from the person exceeds what it costs to employ that person.  As the cost rises, fewer people will be hired.  This is basic economics.  When we raise the minimum wage, we are cutting off the bottom rung of the ladder.  As a result, some people will never, ever climb that ladder.

This does not mean we should not raise the minimum wage.  In any policy, there are winners and losers.  There are trade-offs.  If we raise the minimum wage, the clear winners are people who now have a job at the new higher wage.  It is very easy to see that they are better off, and they know it.  There are losers too, but they aren’t so clear and the losers may never know they are losers.  The primary losers are people who never get hired who would have gotten hired if the minimum wage had not risen.  If the employers have to raise prices to pay for the higher wages, the consumers who pay the higher prices are also losers.  The companies who have to pay hire wages without getting more for their wages are also losers, although I am sure that this would be unimportant to Clifton.

Clifton also claims that the workers will make more money, spend the money, and this will help the economy making everybody a winner.  This would be true if the higher salary was due to increased productivity, to the worker earning more because the worker is worth more.   When productivity increases, the pie gets bigger. If, however, this is just an arbitrary raise without any productivity increases, the pie isn’t getting better.  It is just being cut differently.  This means that every extra dollar that the higher minimum wage worker spends, somebody else is spending a dollar less.  There is no spending boost in the economy.

The key point here isn’t to say that the minimum wage shouldn’t be raised.  The key point is to say that it is complicated, that there are trade-offs that should be weighed.   Clifton is denying the complexities of the issue and proposing a simple answer.  Remember that Clifton’s whole point was to say how stupid the Republicans were and how Republicans didn’t understand the issue.

 ISIS

Clifton states, “When it comes to ISIS,Republicans just want to send in troops and ‘crush the terrorists’.”   Note that Clifton put “crush the terrorists” in quotes.  I am not sure who he is quoting.  I have not heard a single reputable Republican advocating sending American ground troops to fight ISIS.  Clifton is raising a straw man argument.  He is saying his opponents are for a position and then ridiculing the position, when his opponents don’t have that position.  Clifton states:

When it comes right down to it, I really do believe a huge part about why so many of the non-racist Republicans are against President Obama is because many of them are simply unable to grasp his “big picture” thinking that drives a lot of his policies. That requires intelligence and far too many conservative would rather just be told what to think by Fox News. They want their policies to be so simplified and catchy that they fit on bumper stickers.

He is clearly stating that Obama has a “big picture” policy, that Obama’s understanding is so much better than the Republicans’.   Is he referring to the same Obama who over a year ago scoffed at ISIS as a threat calling it the “JV team.”  Here is a link to a Politifact article which shows Obama’s statement and stating that his later denial of referring specifically to ISIS is false.  Obama also removed all troops from Iraq, overriding his top advisors who wanted him to leave behind a residual force.   This Time article “Leon Panetta: How the White House Misplayed Iraqi Troop Talks” references former Obama CIA leader and Secretary of Defense Leon Panetta on this subject.  On the way to taking over major Iraqi cities, such as Mosul, ISIS had to cross a wide open desert which would have made them sitting ducks to an air attack if we had kept a residual force.

Why therefore should anyone believe that Obama has this “big picture” view of ISIS  that the Republicans are just too dumb to understand?

Obama:  The Super Genius

In addition to saying that all Republicans are idiots, Clifton is stating that Obama is such a genius that his detractors, idiots such as Dr. Thomas Sowell, can’t keep up with his intellect.  I ask where is the evidence that Obama is such a genius?  I am not saying Obama is stupid.  After all, he graduated from Harvard Law School.  What about Obama though should make us think he is that much more intelligent than his opponents?  Obama still has not authorized the release of his grades in college.  Does anybody really think that if his grades were exemplary, he wouldn’t release them?

I will tell you what shocked me more than anything else when it comes to realizing Obama’s understanding of policy.  In 2011, in an interview with NBC’s Ann Curry, Obama blamed unemployment on advances in technology:

There are some structural issues with our economy where a lot of businesses have learned to become much more efficient with a lot fewer workers. You see it when you go to a bank and you use an ATM, you don’t go to a bank teller, or you go to the airport and you’re using a kiosk instead of checking in at the gate.

By Obama’s logic, we never should have invented the plow.  For example, lets say we have an agrarian society where it takes everyone’s efforts to grow enough food to feed the society.  Then somebody invents the plow.  Now only half of the people are needed to do the farming.  We can say that the plow made half of the society unemployed.  Now, however, the labor that has been freed from farming can do other things.  People can be blacksmiths, shoemakers, merchants and artists.  Overall, the society is wealthier than it was before.

The concept here is that technology increases productivity.  Productivity is the total value of goods and services produced divided by the costs of providing these goods and services.  Productivity from labor can be thought of as the total value of goods and services produced per working hour.  A person’s productivity represents the most somebody is willing to pay that person.  When we increase productivity, we can pay the person more.  New technology may cause some people to lose jobs in the short-term.  The proverbial buggy whip employees were put out of work by the invention of the automobile, but overall society was better off.

This is something that they teach in Economics 101.  It is simple, basic economics.  When Obama blamed unemployment on ATM machines and other technology, he showed he did not understand the basic facts about economics.  This is the man who is in charge of the economic policy of the United States.  This is the super genius whose knowledge leaves everybody else in the dust.

I don’t think so.

Bad Assumption 1 Revisited – If we disagree you are either mean or stupid.

I don’t know Allen Clifton. I think he is probably a fairly intelligent person.  Like my friend who posted this article on Facebook, he is also probably a nice person.  I think he is also totally blinded by bad assumption 1.  By demeaning his opponents, by saying they are all stupid, this means he doesn’t need to seriously look at their arguments.  This also means, he doesn’t need to examine his own arguments, his own views.  As I have said previously, just about every issue has two sides.  If you can’t argue the other side assuming that your opponent is a well-meaning, intelligent person, that means you don’t really understand the issue.  I think we are all much better off if we can jettison this bad assumption.

Top Ten Bad Assumptions: 2 – The intended effect is the only effect.

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Alternate Assumption:  The impact of unintended effects is frequently greater than the impact of the intended effect.

Let’s say we run a store.  For simplicity’s sake, let’s say we have ten customers who each spend $1,000 per month for total sales of $10,000 per month.  We set a goal of increasing sales by 10%.  To do this, we raise prices by 10%.  We expect that we will now have $11,000 in sales each month.

After we increase our prices nine out of the ten customers decides to shop with us as always, but one customer balks at our price increase and chooses to shop at a different store.  Now nine customers spend $1,100 per month for total sales of $9,900/month.  Instead of increasing our sales, we have decreased them.

The unintended effect exceeded the intended effect.  Most people intuitively understand that you can’t just raise prices without losing customers.  Typically, however, the unintended effects aren’t immediately obvious.

New York City had a problem.  Rents were rising and elderly people could no longer afford to stay in their apartments. People were moved by the plight of elderly people being forced to leave their homes, and so they instituted rent control which limited how much landlords could increase rent on their tenants.  This solved the problem of high rent increases forcing out the elderly, but what were the unintended effects?  These included:

  • There was a major housing shortage in New York City causing rents for new residents to skyrocket.
  • As people age and their children move out, they need less room.  Typically people would move to a smaller apartment to save money.  After rent control, renting a new smaller apartment costed more than staying in the rent controlled apartment, so people stayed in apartments that were bigger than they needed.  The unavailability of the large apartments forced young families into higher priced, smaller apartments.
  • Landlords would often not perform proper maintenance on their apartments.  The normal incentive is to keep your existing tenants happy as it is more costly to find a new tenant than to keep collecting checks from the old tenant.  Under rent control, however, if the old tenant moved out the landlord could rent the apartment for much more to a new tenant so landlords were rewarded for performing shoddy maintenance,

Rent control had an intended effect that was good but it also had unintended effects that were bad.  With some thought, the negative affects were fairly predictable.  One just needs to look at what behaviors are being rewarded and what behaviors are being punished.  You will get more of what you reward and less of what you punish.  The people who pushed rent control didn’t do that, however.  They wanted to stop elderly people from being evicted.  If you opposed rent control, that meant you wanted elderly people to be evicted.

Right now there is a current push to substantially increase the minimum wage.  There are proposals before Congress to raise the federal minimum wage from $8.25 to $10.10.  Fast food workers have been protesting demanding a $15 minimum wage. The argument is that if people work full-time, they should be able to earn a “living wage”, enough to pay rent and food and other basic necessary expenses.  This certainly appears to be a reasonable argument.  If the minimum wage increases, it will certainly achieve the intended effect where people who work for the minimum wage will get paid more.

What, however, are the unintended effects of increasing minimum wage?  Employers now have an increased cost and they need to do something about it.  What are their choices?

  • They can absorb all of the costs and reduce profits.  Some employers can and would do this.  This is certainly what many who are pushing for the minimum wage increase are expecting.  In some cases the profits aren’t large enough to cover this cost and the employer would be forced out of business.  Also, if the profitability of a business decreases, it decreases the incentive for people to open new businesses and stops new jobs from being created.  We will never know how many businesses aren’t even started because they are no longer perceived to be profitable.
  • They can pass on the increased costs to consumers.  This will cause everybody’s prices to rise.  This is not a good thing.  Some consumers will reject the price increases and shop elsewhere causing a loss of sales, profits, and eventually jobs.
  • They can hire less people, reducing jobs.  There might be one less person behind the counter and you will wait a little longer for your fast food.
  • They can replace people with machines.  The burger flipping machine might seem to expensive at an $8.25 minimum wage but attractive at a $10.10 minimum wage.

As a result, raising the minimum wage would cause a drop in minimum wage jobs.  One can debate over how large that would be, but there would definitely be a drop.  Also, many people who make minimum wage are teenagers who live at home.  These teenagers do not need a living wage.  They want to help their families or earn extra pocket money.  Most importantly, the minimum wage job is the first rung on the ladder of a career.  The minimum wage job for most is where you get initial experience, prove yourself, and work your way to a higher paying job.  If the minimum wage job isn’t there, the teenager never gets to step on that first rung of the ladder and may never go any higher.

One could conceivably account for that by passing a higher minimum wage for adults than for teenagers.  In this case, you are now favoring the hiring of teenagers over adults, so you are hurting the adults who need the job to survive and helping teenagers gain extra pocket money.

In short, we have a trade off.  The intended effect is that minimum wage workers make more money.  The unintended effect is that some businesses go out of business, other businesses never open, inflation rises, unemployment rises, and some young people never get their career started.

I personally think that the unintended negative effect is greater than the intended positive effect,  This is debatable.  The big problem though is that there is often no debate.  This is because of Bad Assumption #2:  The intended effect is the only affect.  If you oppose the minimum wage increase, you don’t want people to earn a living wage.   You must be mean.  (See Bad Assumption #1.)

While I focused here on my examples of rent control and the minimum wage, this bad assumption is pernicious and can be seen in an endless number of policies that on the surface do good but below the surface do a lot of harm.  It is easy to make this awful assumption.  We need to recognize it and fight against it.