An Entrepreneur and the Minimum-Wage

Our brilliant Congressmen in Washington, D.C. decided a couple years ago that it would be a good idea to raise the minimum wage by about 40% to $7.25/hour. It just took effect last year. That probably sounds like great news for everyone – more money in everyone’s pockets can only be good, right?

Unfortunately, it doesn’t work that way in the real world. If I’m forced to pay everyone 40% more, I can’t afford to schedule as many employees for as many hours, since our sales aren’t going up by 40%. Remember, I can only afford to pay you guys a certain percentage of all the money coming in the door. That means hours get cut, and everyone ends up poorer.

via An Entrepreneur and the Minimum-Wage.

How Do We Get The Deficit To Zero?

Heritage.org posted this stark, depressing summary of Federal spending and revenues for 2010:

Per Household Amount Total
Social Security/Medicare -$9,949
Defense -$6,071
Antipoverty -$5,466
Unemployment -$1,640
Debt interest -$1,585
Veterans’ benefits -$1,052
Fed. emp. retirement benefits -$1,018
Education -$914
Highways/transit -$613
Health research/regulation -$550
Mortgage credit -$470
Everything else -$2,078
Total spending -$31,046
Total revenues $18,276
Surplus/deficit -$13,130

That’s just for 2010 spending. It doesn’t cover ObamaCare (which is not going to save any Federal money) or future bailouts.

To reduce the deficit to near-zero, we either need to raise revenues by 72% per household, or we need to cut spending by 44% per household (to 56% of the current level). (Not paying debt interest isn’t an option, unless we get forbearance from our lenders, which I don’t expect any time soon.) That’s just to reduce the deficit to zero, and doesn’t pay off any existing debt.

How can we get that deficit to zero? If you had to cut something out, how would it work?

The Left/Liberal/Democrat/Progressive/Socialist Bias: (I am clearly not in this category, but I’m doing my best to approximate an accurate and recognizable response.) We can get to an 11-cent surplus if we cut everything, leaving only …

  • Social Security/Medicare
  • Antipoverty (e.g. Medicaid)
  • Debt interest

… and leave only 61.4% of the “everything else” (which includes things like Congress, Justice, etc). That’s with zero defense budget, folks, and no more veterans’ benefits, no federal retirement checks, etc. (I’ll assert that the folks on the left would be happy to raise taxes to cover the missing items.)

The Right/Republican/Conservative Bias: (I’m not really in this category either, but I have a better feel for how this response would look.) We can get to a 20-cent surplus if we cut out …

  • Antipoverty
  • Unemployment
  • Education
  • Health research/regulation
  • Mortgage credit

… then leave only 70% of Social Security/Medicare, and leave only 46.8% of “everything else” in place. So even cutting out the programs conservatives love to hate, we still have to drop 30% of Social Security/Medicare to get the deficit close to zero.

The Real Problem: It’s those top three categories: Social Security/Medicare, Defense, and Antipoverty (only one of which is even remotely mentioned in the Constitution). Even if we get rid of every single item except those three, the deficit is still $4795 per household; that’s with nothing else but those three. We’d have to raise taxes by 26+% just to cover those top three items, except there would be no money to pay for the IRS to enforce it.

The question now is, what politically-viable approach can we take to cutting spending? (Please God let’s not increase revenues more than we have already.) Who will volunteer to take the hit?

GM Loan Paid Back? Not Really.

Well, OK, they paid back the part of their bailout that had the word “loan” in it. But they paid it back with other taxpayer money, not with money from business operations. What a bunch of liars. But it’s Government Motors now; what should we have expected?

Uncle Sam gave GM $49.5 billion last summer in aid to finance its bankruptcy. (If it hadn't, the company, which couldn't raise this kind of money from private lenders, would have been forced into liquidation, its assets sold for scrap.) So when Mr. Whitacre publishes a column with the headline, “The GM Bailout: Paid Back in Full,” most ordinary mortals unfamiliar with bailout minutia would assume that he is alluding to the entire $49.5 billion. That, however, is far from the case.

Because a loan of such a huge amount would have been politically controversial, the Obama administration handed GM only $6.7 billion as a pure loan. …

As it turns out, the Obama administration put $13.4 billion of the aid money as “working capital” in an escrow account when the company was in bankruptcy. The company is using this escrow money–government money–to pay back the government loan.

via Still Government Motors.

More links:

Like Shifting Your Credit Card Balance To Another Card

Lawmakers Accuse GM, Administration of Misleading Public Over Loan Repayment

Fun with Numbers: GM ‘Payback’ of Taxpayer Loans

UPDATE (Mon 303 May 2010): Another link: NYT: GM, Treasury lied about bailout repayment

Gambling with Other People’s Money

In the United States we like to believe we are a capitalist society based on individual responsibility. But we are what we do. Not what we say we are. Not what we wish to be. But what we do. And what we do in the United States is make it easy to gamble with other people’s money—particularly borrowed money—by making sure that almost everybody who makes bad loans gets his money back anyway. The financial crisis of 2008 was a natural result of these perverse incentives. We must return to the natural incentives of profit and loss if we want to prevent future crises.

via Gambling with Other People’s Money | Mercatus.

Europe in Crisis

It is tempting and superficially agreeable for Americans to gloat about Europe’s troubles. After all, every time something goes wrong in American domestic or economic policy, European elites and journalists are quick to gloat and find fault. After listening to two years of stern and self righteous lectures about the ‘failure’ of the American capitalist model, many Americans who deal with the Europeans are quietly enjoying the spectacle of the smug Europeans writhing in helpless indecision and pain over the continent’s self-inflicted wounds.

But bad news for the EU is bad news for us too. Irritating as a strong EU can be, a weak and divided Europe is much worse. A peaceful, prosperous and geopolitically boring continent that exports tedious platitudes about global governance is a far better place than any other Europe we have seen in modern times and American national interests are in no way enhanced by economic and political instability in the Mediterranean — to say nothing of Ukraine and Turkey.

Europe’s problems end up in the American in-box. The Napoleonic Wars convulsed American politics through the War of 1812. From World War One through the Yugoslav wars of the 1990’s, no great European crisis left us untouched.

It’s too soon to say where this latest euro-crisis is heading, but serious economic or political disturbances in Europe will soon affect us over here — and not in a good way.

via Europe in Crisis – Walter Russell Mead’s Blog – The American Interest.

Why Does Larry Summers Like Big Banks So Much?

But there's one thing he does hint at, though he doesn't quite come out and say it: bigger banks might be better for regulators. It may not be smart to put all your eggs in one basket . . . but it's probably a hell of a lot easier for a regulator to watch that basket. Plus, big banks provide nice lots of cushy jobs for regulators to retire into. Small banks don't have quite the same incentives (or payrolls). This may explain something important about what's happened in our banking system over the last few decades.

via Why Does Larry Summers Like Big Banks So Much? – Business – The Atlantic.

What the Tea Party Movement is Really About

Central planning has two primary flaws, when compared with economic freedom: it misallocates resources, and it magnifies the impact of corruption. I could write a decent-sized book explaining both of those mechanisms, but because I’ve never been busier in my life than I have been these past few weeks, I’ll cut to the conclusion.

The endpoint of central planning, if not outright failure, is a much deeper and more intractable division of society into haves and have-nots. After promising a better world for everyone, the progressives will end up creating a society that is more polarized than ever.

via What the Tea Party Movement is Really About | The New Ledger.

A Plague of ‘A’ Students

America has made the mistake of letting the A student run things. It was A students who briefly took over the business world during the period of derivatives, credit swaps, and collateralized debt obligations. We’re still reeling from the effects. This is why good businessmen have always adhered to the maxim: “A students work for B students.” Or, as a businessman friend of mine put it, “B students work for C students—A students teach.”

It was a bunch of A students at the Defense Department who planned the syllabus for the Iraq war, and to hell with what happened to the Iraqi Class of ’03 after they’d graduated from Shock and Awe.

The U.S. tax code was written by A students. Every April 15 we have to pay somebody who got an A in accounting to keep ourselves from being sent to jail.

Now there’s health care reform—just the kind of thing that would earn an A on a term paper from that twerp of a grad student who teaches Econ 101.

via A Plague of ‘A’ Students | The Weekly Standard.

Muslim Threat Results In Censorship

Via http://artsbeat.blogs.nytimes.com/2010/04/22/south-park-episode-is-altered-after-muslim-groups-warning/?hp we have this:

An episode of “South Park” that continued a story line involving the Prophet Muhammad was shown Wednesday night on Comedy Central with audio bleeps and image blocks reading “CENSORED” after a Muslim group warned the show’s creators that they could face violence for depicting that holy Islamic prophet. Revolution Muslim, a group based in New York, wrote on its Web site that the “South Park” creators Matt Stone and Trey Parker “will probably wind up like Theo Van Gogh” for an episode shown last week in which a character said to be the Prophet Muhammad was seen wearing a bear costume. Mr. Van Gogh was slain in Amsterdam in 2004 after making a film that discussed the abuse of Muslim women in some Islamic societies.

On Thursday morning, a spokesman for Comedy Central confirmed that the network had added more bleeps to the episode than were in the cut delivered by South Park Studios, and that it was not giving permission for the episode to run on the studio’s Web site.

So we are now at the point where an organization based in New York can issue veiled threats against cartoonists, and the authors’ publishers will censor their work.

Censor this, assholes:

Muhammed Head-Bomb

Update: See also http://www.advicegoddess.com/archives/2010/04/22/muslims_threate.html and http://althouse.blogspot.com/2010/04/comedy-central-cowers-in-face-of-murder.html.

Update 2: Instapundit says: “Obviously, Christians — and Sarah Palin fans, and lovers of My Mother The Car — should take heed of this incentive system our modern media is creating. Don’t want things you treasure satirized? Just issue a “prediction” and — voila! Meanwhile, note how entirely real radical Muslim threats and violence are treated as just part of the weather — something you have to adapt to — while nonexistent Tea Party violence is an existential threat to the Republic.”

Size, Scope, and Fragility

This fragility of tumescent government is what many otherwise thoughtful commentators fail to notice. They think that we can solve our problems with a value-added tax (VAT) or with a fiscal reform commission.

Instead, I believe that the problem is structural. American government will not be stable and sustainable until it is broken up and most of its functions are devolved, so that spending decisions are decentralized. A robust society would have more public goods delivered by the voluntary associations that Tocqueville noticed were characteristic of America. These associations are much more numerous and diverse than our governmental units.

via Size, Scope, and Fragility, Arnold Kling | EconLog | Library of Economics and Liberty.