Tuesday, January 26, 2010

The Repugnant Nature of the Minimum Wage

This post has grown out of an entry that I posted at Red State here. I received some interesting comments on it at Red State, so I thought I would rework it and open the post up here for discussion. I introduced this entry at Red State as part of the "Red State Book Notes" project.

This weeks reading for the "book notes" included the chapter “Minimum Wage Laws” from Economics in One Lesson. If I had titled the chapter, I would have called it “The Evil-and-in-all-Ways-Morally-Repugnant Minimum Wage Law”. In the interest of full disclosure, I have always thought minimum wage laws violated the very concept of a free society. If I run a small business and work out a contract with an employee to work for me for $5 an hour, why does the federal government believe it is entitled to step in and tell me I must actually pay that person $7.25 an hour? This is a private transaction between two people.


However, we are told that by having a minimum wage we guarantee people make a just and decent “living wage”. But do they? As Hazlitt points out in this book:


The first thing that happens, for example, when a law is passed that no one shall be paid less than $106 for a forty-hour week is that no one who is not worth $106 a week to an employer will be employed at all. You cannot make a man worth a given amount by making it illegal for anyone to offer him anything less. You merely deprive him of the right to earn the amount that his abilities and situation would permit him to earn, while you deprive the community even of the moderate services that he is capable of rendering.


This makes perfect sense if you think the process through and ignore the typical political rhetoric. Let’s say you own a small business. Applicant A shows up for a job interview. While the person is nice enough, you quickly determine their labor isn't worth the $7.25 an hour to you. You won’t hire this person. You will wait until someone comes along that you believe is worth the $7.25. The federal law has made Applicant A unemployable.


The argument is sometimes put forward that we need a minimum wage law, or need to increase it because the gap between the “have’s” and the “have nots” has gotten too big. First, there is never any evidence put forward with this argument. Secondly, as the above shows, a federal minimum wage law will only make any gap there is that much larger. Finally, this gap never takes into account the increased living conditions of today’s “poor” versus their counterparts from 50 years ago.


When I originally posted this, I got a comment that minimum wage laws prevent industry from exploiting people. This argument assumes that individuals can’t take care of themselves. The supporters of minimum wage laws assume that someone working $5.00 and hour won’t leave to earn $5.25 an hour. It also assumes that only the government can prevent an employer from taking advantage of an individual. Our world is now so interconnected it’s easy to find out what employers pay. If you are worth more, you’ll find a job that pays more.


Finally, if you accept the theory behind the minimum wage law, then you must also accept the power of the federal government to decided a "maximum wage law", or a point above which you cannot be paid. If the government can legally set a price below which you cannot pay someone, why can’t it set the price above which you cannot pay someone? Further, since minimum wages apply to almost every industry, a "maximum wage" would as well. The maximum wage law has gotten some traction when it is suggested that it apply to companies that have taken bailout money. That is just a short skip from all companies.


A minimum wage law is just another instance of the federal government interfering in what should be private transactions between two people. You can wrap it up in the pretty argument of a “living” wage, or in “helping the poor”, but at the end of the day, its just the government sticking its nose into our private lives when they shouldn’t be there. It’s a failed attempt to legislate prosperity.

29 comments:

Seattle Dave said...

Andy, in all seriousness.

Stick to engineering, because frankly, you have absolutely no idea how business works.

To dispute your entire ill conceived article, you need look no further than Nike as to why there is a minimum wage.

Nike took their entire manufacturing operation overseas in order to hire even cheaper labor and increase profit. And this was back when minimum wage was around 5/hr.

It bothers me how little you know about the real business world. And I'm being serious about this.
It really does bother me.

saint said...

Here's my argument against min. wage. Every couple of years, the Fed raises min wage. You will notice a correlation between that and price increases. So, what happens is that the min. wage people are no better off because prices have gone up, the business are not changed, and the people who are above min wage have to start paying more, and those unemployed find it even tougher to live.

Sutherlin Griff said...

Dave,

I actually agree with Andy. I would hire a janitor right now at our business for the peak season, but not at over $8.00/hour at Oregon's minimum wage. The government has priced me out of hiring somebody at $5/hr. If I could hire a high school kid for this price, I would probably do it. Judging by the number of families that are standing in line at the food pantry these days, I'm guessing there are families that could use it.

Further, we have priced even more people out of working. Some of the jobs available now pay less than unemployment benefits. I have talked to members that have decided not to take jobs to not take a pay cut. The funny thing is that the job could be a permanent solution while the UE benefits will run out.

An even better example is my buddy that manages a gas station. He says if he could pay his employees what he wanted, he would pay his new hires at $5.00, and his proven employees $11 or $12 per hour. With Oregon's minimum wage, he has to compress wages, and his proven employees only make $.50 or $1.00 more per hour. So in this cage, minimum wage screws the employee that is slightly better than minimum wage. This, in effect, taxes a business's ability to retain and reward good talent.

Finally, you don't have to be insulting. It is your least endearing quality.

Sutherlin Griff said...

It also bothers me that Seattle Dave uses this posting name. He lives in Spokane. This is clearly misrepresenting his identity.

Anonymous said...

So in an effort to make sure that Nike employees made a decent living the government imposed a minimum wage. So Nike in an effort to keep profits up goes over seas for cheaper labor. So now the employees here that might have been happy making $5 an hour now make $0 an hour because somebody who's government allows them to make $0.50 an hour is doing their job.

Spokane Dave by way of Seattle said...

Hey Sutherlin Griff! There is total and complete transparency in my name! When I started posting, I was in Seattle!



Look, let's be realistic and completely honest about min wage and what it would mean if business could arbitrarily set wages without a basement.

No doubt that people would LOVE to hire anyone for 3, 4, 5 less an hour than the current min wage.

We'd take a 200 year step back in a heartbeat, and live in a serfdom society.

However, in today's world, people can't live on that. They can barely scratch our a living at 7/hr. Cost of living increases don't only affect those of us who make good money and live comfortable lives. Sure, we may bitch about rent going up 100/mth or the price of bread increasing, but we mostly have the discretionary income to sustain that AND get, excluding the past 2 years, pay increases that take that into account.

About your specific example. I would argue that if you can't afford to pay someone 8/hr for a 20hr/week job, than you can't afford to pay them 5 either. Is that $60/week really going to make or break you?

As well, how many corporations in this country would begin to arbitrarily lower their hiring salaries? It's not unrealistic to think that there would be people offered 3, 4 or 5 an hour to work for big corporations, let alone small businesss. Over time, the entire pay scale would begin to decrease, but at a much faster scale.

Finally, exactly how do you measure if someone is worth 5/hr vs. 5.50 an hour? Can you really come up with a scale that somehow measures that? And how could you possibly relate people making minimum wage to rewarding and retaining those with talent? If they have talent, or aspire to be better, they aren't making minimum wage in the first place.

@Saint - Don't kid yourself. Price increases have nothing to do with minimum wage. There are 6 million factors involved in increasing pricing on any product or service. Min. wage is the least of the factors.


Finally, I'm not being insulting, as I am about 99% positive that Andy really could care less what my position is on anything, and vice versa.

I'm being realistic. This is an ill conceived article in that we've already seen what happens when you leave the private sector to their own devices (I was a part of that, i readily admit). And now you would want to do the same thing with wages?? Have we not learned anything over the past 10 years?

Andy D said...

I think a lot of good points have been brought out here.

Dave, you may not like my line of reasoning, but I don't think you should discount Griff's arguments so quickly. Here is a small business owner stating what they would do, and giving you an example from another small business owner. In both cases, the business, and potential employees would be in a better situation if the minimum wage was done away with.

You argue companies would across the board lower their wages and that as a nation we would see a sudden drop in our standard of living. I think you underestimate the value of workers. There would be some companies that might try that, but most companies already start people out above minimum wage. If employers are so evil that they will drop jobs down to $3 / hour, why aren't they dropping everything to minimum wage already? The answer: they can't keep employees if they do that.

Historically, starting salaries in the United States have been above the minimum wage level. The evil business giant Wal-Mart is a good example. In 2008, the average starting employee at this evil, profit driven company, would start work at $10.84 / hour at 34 hours a week. Is that enough to live on? I don't think so. Is it well above the minimum wage? Yes.

So why get rid of it? Because of examples like Griff states. There are small businesses that could hire part time workers, or janitors for far less. In today's economy do you think there are people that might be happy to have those jobs?

I don't think this is an ill conceived idea. I think it's a valuable discussion to reexamine some of the things we assume are correct about our government that might not be.

You may not believe me, but I do care what you think. I write this blog because I hope people from every political stripe can read an article like this and think about the subject in a different light. I also hope you can read it, and read some of the comments that follow it, and realized some of the ideas you bring to the table about the federal government and its role in our life might be worth reexamining.

Spokane Dave by way of Seattle said...

Thinking about it a bit more, I can see your point Griff.

However, the point still stands, in my mind, that if you were to give business across the board a blank check to pay what they want, wages would still be negatively impacted all the way up the spectrum.

It's a catch 22.

The other thing I was thinking about, going back to the idea of measurement, is how do you decide someone is worth a dollar or two less an hour? I don't think there is any easy way to answer that question. You start devaluing the impact a worker, any worker, has on your business and that in and of itself is a demotivating factor.

Plus, let's assume you find someone willing to do a menial tasked job. If they are a good person, and attitude and work ethic are a fit (so far as you can tell from interviewing, etc.) are you really not going to hire them for one or two dollars less?

The more I think about it, the more I think there is no real answer. So hence, I fall back on the idea outlined above. Big business would have a field day. And, eventually, we'd see the devaluation of the American worker in our own society, which isn't a good thing.

the anonymous guy said...

this is so exactly why I can never be a drink-the-kool-aid-kind-of-free-market devotee.

we've got two wars going on, a planet under assault, an economy cratering, and Andy is pissed that we guarantee that Americans earn at least $7.25/hour -- or in the case of Oregon, a whopping $8.40/hour -- for their work.

Forget about wall street bonuses, trillion dollar wars, or factory farm subsidies: we need to pay less money to people earning below the poverty line!

Talk about repugnant.

Anonymous said...

The President said on Wednesday night, "It begins with our economy." Since our economy is based on workers and they work for pay I would say the minimum wage is a relevant topic for the issues of the day.

Also, this blog is for political friends not solving the issues of the world. All political issues are fair game...

pack04 said...

Seattle/Spokane Dave I will agree with you on one statement this is a huge catch 22 issue. It is not unlike the 22nd amendment, term limits. I don't like the enforcing of term limits I think it reduces personal freedoms (our right to choose our leader), however I think it is also a necessary thing because it is a rare thing for people to turn power back over once they receive it. I don't like the principal of forcing companies to pay people a certain amount. However, it is necessary because there are some companies that care more about bottom line profit than workers satisfaction. There is no doubt that some people would do better if there was no minimum wage, in the case that Suthernlin Griff pointed out. There is also no doubt that some people would do worse if there was no minimum wage.

I do not agree with your statement that wages for employees have very little effect on product price. That just does not make sense that it would not. Raising the salary cuts into profits (I know that word is a bad word this day) which does not just go into the owner's pocket. Bottom line in business is a companies profit. That is one of the factors they are judged on.

Additionally it is a utopia that cannot exist, people not being below the poverty level. That is a harsh thing to say, I know, but a reality. The minimum wage issue to address the needs of the people below poverty is the typical American attitude, just throw money at the problem. We need to make sure that all peoples basic needs are met. That they have the ability to better themselves, the ability to survive on what they make. Ensuring they made more money was a way to ensure people could survive on what the made. However, did it solve the problem? I am not sure. There are many factors to explain that either way.

On another point. Andy points out that a danger of minimum wage is a maximum wage limit. He is very true and that is even more scary.
Along those lines if we removed the minimum wage, which is a protection for workers, because of it being "non-American" or reducing the freedom of employeers than what is to stop us from the same line of thought to remove the enforcement of 40 hour work weeks, or 5 day work weeks or child labor laws?

Andy D said...

Wow, there are some very good comments here. Thanks for everyone's input..

Dave,

Focusing in on "how to measure someone's worth", what you are really measuring is what the value of their labor is, not their value as a human. The two are totally separate. Their Labor Value is what ever someone is willing to pay them. If Griff was willing to pay me $5.00 and hour and you were willing to pay me $2.50 an hour, then my labor has two different values to the two of you.

Anonymous guy,

First, it's my blog and I am free to write about whatever I wish. The topics you rant about have been discussed here before. This post was meant to be a little different which is what I hope readers come to this blog for. As I write this, I have received 11 comments on it. I am pretty pleased with that kind of response.

Pack,

I think you raise some interesting points. I would not do away with all regulations and laws regarding how companies interact with their employees, but I do believe there are some on the books (such as Min. wage) that should go away. Three are practices workers should be protected from. The min. wage is designed to guarantee a "decent living" or to protect employees from unfair rates by business. I think it fails at both of those objectives. I don't believe many people can live on $7.25 an hour for very long, and even the evil Wal-Mart starts people at a higher rate.

the anonymous guy said...

Andy that's a weirdly morally relativistic argument.

I point out that your concern here (among plenty of other options) is cutting the wages of the poorest workers in America. You respond that you got lots of comments so it's all good.

I guess that makes the bathroom wall at my local gas station a moral exemplar.

Again, this just shows why some of us can never be ideological free-marketeers. All that means, in the extreme end, is that democracy doesn't apply to business. That's immoral and undemocratic.

Seattle Dave said...

Pack04 (there, I finally typed it all!) :)

Just to be clear, I was talking about min wage, not wages in general.

Of course, I agree with you that wages in general definitely affect pricing of products or services. G/A costs are the first thing we look at on our balance sheets, year in and out.

What I should have more clearly stated was that in the med/large business environments, where I have worked all my adult life, minimum wage increases would be the smallest factor in whether or not we increased pricing on our products. In point of fact, the biggest factor (removing national monetary policy IE the fed) was executive compensation. After all, year in and out, the executives always showed us where their hearts truly where, snugly inside their wallets when it came time for budget reviews and hence, salary reviews.

In a small business scenario, I dunno. Again I would ask the question: If you can't afford to pay someone 7/hr to do a job, can you then really afford to pay them 5/hr? It's an analogy we use all the time in our business.

Finally, I will disagree with anyone about large business not slowly scaling down pay, if we had no floor. It would happen overnight and faster than you can shake a stick. And it would happen in the majority of large and medium sized corporations. We've already seen the beginings of that with the stagnant household income numbers over the past 15-20 years on top of labor being shipped overseas. I'm sure everyone understands, when you're beholden to wall street, you have to do everything you can to show profit. Hence, remove jobs, slow down pay scales, etc. Easiest and fastest way to do it.

Of course, there are truly "great" companies out there that don't rely on lowering their G/A costs to find profits during slow times, but those companies are a dime a dozen.


So, I humbly apologize, I should have been more clear on my first point.

pack04 said...

Look the president has things to worry about like the wars and tanked economy... http://sports.espn.go.com/ncf/news/story?id=4870657

Sutherlin Griff said...

Is there anybody that denies that there are plenty of workers that do not possess the skill set, motivation, or intelligence to be worth the $7.25 minimum wage, or in Oregon's case, $8.45?

If so we are just at odds.

But if not, then what do we do with these people? We have priced them out of working, and into welfare. To me, this is a double whammy. You take a man/woman that could be an income producing guy at $5.00, and turn him into a state beneficiary on welfare. Turn him from a positive into a negative.

And still, we have the argument that we compress wages at the bottom end with a minimum wage. I haven't seen anybody debate this point. If employers could pay new hires a market wage, they would have budget free to increase wages for the employees they want to retain. I know many business owners that employ minimum wage employees, and they all say that minimum wage complicates their ability to retain good workers.

All in all, I agree with Andy's post. Minimum wage kills the unskilled worker, compresses the wages of slightly better than minimum wage worker, and puts more people on state assistance than need be.

Andy D said...

Before I say anything else, I think this has been a good discussion. I have enjoyed everyone's comments.

Anon Guy, I don't understand your point. It seems to me your just looking to throw insults around without actually being part of the discussion.

Dave, there's only two points I disagree with you on. The first is the "If you can't pay someone $7, can you afford $5?" Where do you stop the argument? $8? $9? $10? It seems like there is not end to this when you think a 40% increase is insignificant.

Second, I don't agree that industries will drop their wages drastically if min wage goes away. As I pointed out, Wal-Mart starts out their FT employees far above min wage. There is no law that requires this.

Pack... I don't even no where to start...maybe a new post?

Griff, we see eye to eye. Obviously you are wise beyond your years.

Spokane Dave said...

And again, you guys seemingly are ignoring what happens when there is no minimum wage.

I don't understand how you can gloss over the fact that labor has been shipped overseas over the last 10 years precisely because there is no min wage in a countries like China or Mexico.

Again, need look no further than Nike, who by having no min laws in place are able to get away with paying people .30/hr in wages, and still not pass a dime of that savings onto the customer.

Again, have we not learned anything in the pass 10-20 years about big business in this country?

There is no such thing as a "free market." Somebody always pays. In the case of the past 20 years, we have paid, both at the retail counter and in terms of lost jobs.

This would just be yet another step in allowing business to run rampant in our economy.

We've already seen what the first step (deregulation) has done. How much farther into recession and depression are you willing to go before you see the light of day?

I'm not saying big business needs to be regulated beyond belief, but there does need to be controls in place. Min wage is one of those controls, that at the very least, makes sure employers do not turn workers into slave laborers. Well, at least anymore than we already are.

If you're going to argue this point, then by all means, argue it. But don't ignore the examples that are already squarely in front of us.

Think about this: Nike shipped labor overseas. Nike's shoes costs roughly $5-%35 per shoe to make (low and high ends). They sell in bulk to retailers for $60-$70 per shoe, who in turn sell to the general public for x amount of dollars. Not to mention their own retail stores where they don't have to pay the middleman, hence pocketing a large sum of that cost.

Add $5-$7 dollars for regular labor costs on Nike's end, and they are still averaging a HUGE margin. So, instead of taking slightly less in profit to create jobs in America, they ship the jobs elsewhere, cut their labor costs, and hold the profit. It cetainly doesn't get passed on to us (the consumer).


&Griff - You can't tell me that if you had no minimum wage, once you started hiring people at less cost, that it wouldn't snowball (assuming you expanded and/or had need to hire more people). You can't tell me that because if it was me, the minute I had a tough month, or a few tough months, projected budgets for a tough coming year, or had to lower prices to compete, I would immediately go to my budget, look at my G&A and find a way to lower that to compensate. And the first place would be salaries.

@Andy - I don't mean this to be mean or insulting, but simply based on the past 20 years of history in this country, you're naive if you think that big business wouldn't immediately take advantage of this. It's a fricken dream scenario to big business.

Min wage is part of the price of doing business in this country. You want a lowered min wage, remove all the middleman companies between wholesalers and retailers. They don't do anything anyhow except profit for taking little risk. If you did that, thereby forcing companies to go direct to market with their products, you'd eliminate the need for a minimum wage, granted the wholesalers don't follow along with Nike's model.

Sutherlin Griff said...

&Griff - You can't tell me that if you had no minimum wage, once you started hiring people at less cost, that it wouldn't snowball"


Dave, I may or may not make the same decision in the same situation, but your analysis discounts the competitiveness of the labor market, and the dynamic nature of wages in different cycles of the economy.

That is the great thing about our economy. If you feel you are worth more than your wages, you are always free to market yourself to other companies. You treat this analysis like a worker is in a bubble. And I could risk losing a good employee by doing so.

In a bad economy, like this one, I'm sure you would see some wage deflation. This would be beneficial for the bottom line of companies. In a good economy, companies may not be able to hire at lower wages. Such a policy does do is allow companies to employ workers at market wages at any economic cycle, and at a value that the employee is worth.

We will never see eye to eye on your Nike example. You are arbitrarily taking business decisions and making them ethical negatives. The savings they take in production could be seen as a reinvestment in branding. This cost savings allows them to market their goods through superior athletes, and provides people a desireable brand. What the hell is wrong with that?

Minimum wage is the cost of doing business in this country, and the cost of putting people on social programs. We could lower these social program expenses if we allowed people to work at a market wage. What would cost less? Letting someone work at $5, and providing them some assistance, or sending them a check and food stamps for no work.

And at the end of the day Dave, I would rather let supply and demand meet than let people try to manipulate a market to make it "just and fair" with stupid policies that get in the way of people working.

Andy D said...

Dave, I think Griff has a point. You assume that if the min. wage were removed, all things would stay exactly as they are now, EXCEPT businesses would lower their wages. And (in the words of our President) "let me be clear", there would be businesses that would lower their wages. However, empolyees will leave for the best situation they can get, whatever they feel there own labor is worth. With the advent of the internet it's very easy to see what competing businesses are paying each other.

Patrick said...

This has been a great discussion, and I mostly agree with Seattle Dave on this one. I see Griff's points, but one comment particularly peaked my interest. (Keep in mind I'm not trying to tear down his whole line of reasoning by picking out one statement.)

And at the end of the day Dave, I would rather let supply and demand meet than let people try to manipulate a market to make it "just and fair" with stupid policies that get in the way of people working.

As we've seen with this market and economy, manipulation played a part in this recession....and it wasn't fair. One of the worst parts of the aftermath of market manipulation, is that the "money men" are always justifying their job performance. I think it's a shame that the Wall Street bonus media blitz has turned off most people to seeing the truth, that the entire financial industry just doesn't care about America below the six-figure level. (That's including the everyone, not just the evil liberals.) That's not jealously, or envy, just fact.

http://www.ajc.com/news/bonus-pay-stokes-anger-287662.html

The reason why a "free market" supporter won't get mad at this is b/c bonuses keep the talent pool at a job. But ask yourself this question. Is the status quo of the industry really that low that poor performance still merits that type of raise across the board?

We are fighting over crumbs while people are others are laughing all the way to the bank.

Another question is, if any industry such as the financial industry can call it's practices the norm, then is it not plausible for businesses to shift the norm to lower wages without a minimum wage? To me, it would resemble the ebb and flow of our economical history.

A long, long time ago, warehouses had no labor laws and workers had rough conditions, with little pay. Then unions formed to increase the power of the labor force by striking and negotiations. Now, we have labor laws and min. wage laws to keep labor costs higher, but realize unions probably need to go away, or shift their focus back to the reason they were created. I say this to emphasize that for the hourly worker, the major strength of the labor force is the union. Without it, the businesses can see the hourly labor force as divide and conquer, therefore driving down pay. It's give and take; the unions will hurt smaller business, but help laborers in the big business. Vice versa.

I know I'm rambling, and trying to fit everything in a comment is hard. Hope my points came across.

the anonymous guy said...

Part of the Fed's job is to guarantee a certain level of unemployment, so some people are desperate for a job and drive wages down (remember that the unemployment rate is people who are looking for a job but *cannot find one*).

With people who are desperate for a job, you get people who will work for less and less money, which is one reason we are morally obligated to have a minimum wage, especially as long as our economy is *designed* to keep a certain percentage of people out of work--even though they want to work.

Google NAIRU if you think I'm making this up.

Sutherlin Griff said...

@anon,

That makes no sense. If you are talking about the guy that is affected by NAIRU policies, then minimum wage is of no consequence to him. He is NOT WORKING.

Even if he is a few buck below minimum wage, a lesser level of government support is needed to keep him afloat, versus letting him sit on the sidelines on unemployment & food stamps. Your moral obligation to guarantee him a wage is the very thing that might keep him from working.

I believe that the moral obligation is to help him bridge the gap between unemployment and employment. Our society does that well with unemployment benefits, government funded training and employment centers, and eventually welfare if needed.

@Patrick,

You are talking about people at the upper end. "Income redistribution" is a separate subject from this debate. I think there are some pretty viable arguments for salary and bonus limits. The problem I always come back to is devising a formula that will determine a workers worth. If you do it recklessly like our pay czar will, then it will be unfair to some employees that actually create more value than they are paid. This can stifle productivity.

The right to unionize is one of the precise reasons that minimum wage laws are not necessary. If things are not fair, workers can unionize to gain bargaining power.

As far as bonuses go, I am a big believer in performance pay. If an employee meets his or her objectives, and the bonuses are part of budgeted salary, then give them bonuses. Even if financial firms are losing money, there is value in outperforming the competition or the market. I can justify a bonus for losing less money than the other firm. That said, I haven't looked that closely into bonus practices and can't say if this is or isn't the case.

Free Market does have its shortfalls. Yes, we had a meltdown. But I would rather have an economy that rewards motivated people that are innovative and creative than one that "levels the playing field". My belief is in lightly regulated free markets.

Andy D said...

Patrick,

You have a great point, but I want to look at it from a different point of view. You point out: As we've seen with this market and economy, manipulation played a part in this recession....and it wasn't fair. Don't forget there was government manipulation in here as well. The federal government threatened banks into making loans that they wouldn't have previously made. The recent economic problems are a combination of market and government problems. The repercussions of this are far outside this post, I just wanted to point out that it wasn't simply the market run wild. The government had a part as well.

You ask,"Is the status quo of the industry really that low that poor performance still merits that type of raise across the board? " I don't think they merit bonuses based on performance. If the bonuses were part of a retention contract, then yes they do warrant those bonuses. It comes down to what was the bonus offered for. Either way, I don't believe the government should have any say in this. The government should be concerned with the enforcement of a contract, but not whether the bonus was a good idea or not. That should be between the employer and the employee. Griff states he likes performance bonuses, I do as well. However, those should be the decision of the employer and the employee. The government shouldn't be concerned with it.

Anon:

You say Part of the Fed's job is to guarantee a certain level of unemployment. No, it's not. The Fed does not have the ability to guarantee any level of unemployment without making everyone in the nation a federal employee. The mistake you made is common, and I have seen some very smart people say the same thing. If by Fed you mean federal government, it's job is to ensure that the conditions are good for employment, but the actual employment / unemployment level can only be handled by private business. If anything, a minimum wage harms that because it prevents private employers from setting their own pay rates when it comes to employees.

Griff is right no this, I would support programs to help get people back to work, but I do not support guaranteed money and benefits when I person doesn't work. These benefits give people a financial incentive not to work. "Unemployment" checks and benefits are the government paying people not to work.

Patrick said...

Andy-

This is true.

Don't forget there was government manipulation in here as well. The federal government threatened banks into making loans that they wouldn't have previously made. The recent economic problems are a combination of market and government problems.

The one thing that bothers me is the consistency. Banks today were asked to provide loans to refinance underwater mortgages, which is pretty much a majority of Americans. This was financed by our own money. Yet, the banks won't give anyone loans to refinance, which is why the President asked again. (I'm speaking from experience with friends and family across Georgia, Missouri, and California.)

So why are banks reacting differently now? Is it b/c they learned the last time, or b/c they realize they can't make money giving out loans now? Or maybe both?

Patrick said...

Griff-

I understand your point of view. But when someone like Alan Greenspan admits that the biggest mistake was not enough regulation, you have to wonder if a lightly-regulated free market is achievable without much corruption?

pack04 said...

Patrick,
Perhaps it is because the new regulations on banks loaning money greatly reduces the people that they can loan money too. That happened to me. I wanted to refinance my current loan. I could not. Banks cannot loan you a 100% of the value of your house anymore. So in a market where many houses are worth much less than originally purchased for and thus the people owe more than the house is worth, how can the banks lend them enough money to truly get out from under these bad loans? That is the case I ran into. Now there are probably programs out there that are suppose to be for the banks to absorb the loss of the "bad" loans and let people start over. Why did the government give the money to the banks. Why not "give" the money to the people with the bad loans to pay it off, and set up a loan agreement with those people. So those people would owe the government rather than banks. Maybe our government would rather the banks look like the bad people rather than the government when they tell people "no." Maybe this is another great example of our government being a bunch of dumb asses. Saying here is a boat load of money for the problem. They later asking why is the problem not fixed?

pack04 said...

I can't say much about minimum wage effects on business or the economy because I don't own a business in which I employ people nor am I an economist. I do have one experience with government minimum wage and unemployment.
A friend of mine's family owns a lodge in the mountains. They did not open this past summer because they could not find employees. I am not sure what they were looking to pay them but the people that were offered a job turned it down because they made enough to survive off of government assistance. It was not worth their effort to make a little more than that. These people that turned down the job have kids that are in middle school that my friend works at. Her job is to work with them in MIDDLE school to prevent them from dropping out. She tries to teach them that they can have a better live through education. At home they see they can sit on the couch all day, drink beer, smoke and watch Judge Joe Brown with no education and still have food to eat at night. Why should they learn?

This is the cycle of government dependency that is hard to break. Yes it is needed, as a kid my family survived because of government provided unemployment benefits. My father collected unemployment between sales jobs. He was motivated enough to accept that assistance from the government was not a lifestyle he was proud of. However there are people out there that are not like that. We use to be a country that was proud to work, proud to be a blue collar workers. Now people believe that everybody deserves a college education, that it is your right to have a cell phone, a big house, a nice car. To get those things you need to earn more and people are not willing to work for money, regardless of the amount. They always think they deserve more. Our government agreed. Now years ago were companies taking advantage of a workers willingness to work, for sure. Again our governments answer to that problem...just throw money at it.

the anonymous guy said...

you people really don't know what the hell you're talking about. The Fed (ie the federal reserve) does indeed shoot for a minimum level of UNemployment.

That's not a controversial claim. It's simply a fact.