Isaac Laquedem

The Laquedem Plan to measure and index the minimum wage

In real-dollar terms, the minimum wage of $7.25/hour is at its lowest point since shortly after its creation in 1938.  It has been $7.25/hour since 2009.  One of our major political parties, fearful of directing money to people who might actually need to spend it, has obstructed efforts to raise the wage to $15.

Isaac has devised a plan to satisfy the Republicans' philosophical objections and honor the memory of St. Ronald Reagan, all in one package.  Let's begin by directing our thoughts to the Reagan administration, the Laffer curve, and the large tax cuts of that era.  The theory of the Reagan tax cuts, honored in two later Republican administrations, is that by reducing income taxes on large corporations the tax savings would become free cash that would trickle down to the people who were actually doing the work. 

That didn't happen.

I'd like to suggest a new metric for measuring the minimum wage, which is to measure it not in dollars but in how many hours of work at the minimum wage equals one year of a Congressional salary.

The base Congressional salary (leaders get more) is $174,000/year.  The minimum wage is $7.25/hour.  One year in Congress carries remuneration equal to 24,000 hours at the minimum wage.

Now go back to the first year of the Reagan era.  Congresspeople received $60,662.50/year.  The minimum wage was $3.35.  One year in Congress in 1981 equaled 18,108 hours at the minimum wage.

The facile interpretation is that our Congresspeople are 33% more productive than they were in 1981, because they now earn 33% more than their predecessors did in 1981, in terms of the minimum wage.  We have only to look at the Senate of the last few years to reject an explanation based on productivity.  So let's go back to trickle-down economics.

If trickle-down economics had worked as Reagan and Laffer had predicted, then there would be few - maybe no - minimum-wage jobs remaining, because the price of labor would be higher in real-dollar terms than it was in 1981.  The plutocrats would have taken the dollars showered upon them by the appreciative Solons and spent them pursuing labor, driving up wages.  That wages did not keep up is a strong mark against the Reagan-Laffer theory.

But let us assume, as Mitch McConnell and his merry band of naysayers must, that the tax cuts in fact trickled down.  In that case there would be no harm in raising the minimum wage to a level that assumes that the tax cuts did in fact trickle down.  That level, I suggest, is the 1981 ratio, when the minimum wage was 1/18,108 of a Congressional salary.  Today that's $9.61/hour. 

If Senator McConnell is willing to adopt standard Republican economic theory, then he should be all in favor of raising the minimum wage to $9.61/hour, and to index it to equal at least 1/18,108 of a Congressional salary.  If he continues to oppose raising the wage to keep up with costs, then we should insist that Congress adopt another Republican principle and tie Congressional salaries to productivity.  One refinement would be to provide that if a session of Congress is less productive than the historical average, its leaders should get not more, but less, than the base salary.  It seems unjust to call Senator McConnell a legislator when he's working as hard as he can not to legislate.

No Peloton for Christmas? Those two contentious jobs at the Port of Portland cast a long shadow

Readers with long memories will recall that in 2014 the ILWU and the electricians' union fought over two jobs at Terminal 6, the Port of Portland's container facility on the Columbia River (pictured).  The question was whether the task of plugging power cords into refrigerated containers was properly allocated to the ILWU (because the containers were sitting on docks) or to the electricians (because the task involved wiring).  The fight between the unions turned into a general slowdown that drove container shipping away from Portland in 2017.  One freight line tenuously returned (one ship a week) in early 2020, just before the pandemic struck. 

The idled union workers might ask their leadership to read this story about the Port of Los Angeles, the busiest port on the west coast.  Shipping times from China to Los Angeles have ballooned from 2 weeks to 7 or 8 weeks.  The ships still chug across the Pacific Ocean at the same speed -- until they get to Los Angeles, where they sit and wait offshore for weeks with their cargoes of Pelotons and other Christmas gifts (now Twelfth Night gifts?) before they can dock and unload.  Everyone involved justly blames the Covid-19 pandemic.  The delays in unloading in Los Angeles are so great that many importers paid extra - a lot extra - to have their goods flown to the United States instead of taking their chances on being marooned offshore.

Consider the Port of Portland's nearly idle Terminal 6, its facility for handling shipping containers.  Certainly the warring unions couldn't have predicted in 2014 that a worldwide pandemic would strike in 2020.  But they might have considered that anything that caused a slowdown at a larger west coast port might encourage freight companies to divert their ships to Terminal 6, and keep their members employed.

Ted Cruz would eat his words, if he had electricity to cook them with

Except now it's Texas that can't perform even basic functions of civilization as millions of Texans are without power because the state elected to go it alone with its electric grid.  Ted Cruz took off for a vacation in Cancun, where the state government is able to provide power and water.

Endorsements Zero: a general thought on taxation

If one of the three main selling points of a request that you approve a new tax is that you won't have to pay the tax -- it's a tax entirely on other people, or on businesses, or on sales of things that you don't buy -- then the promoters are tacitly admitting that the cause isn't good enough to spend your own money on -- or theirs either, if the promoters are all exempt from the tax themselves.  I'll be elaborating on this thought later in endorsement season.

Harvard Professor Raj Chetty explains COVID-19's impact in a nonpartisan way based on actual data and economics. We should listen.

Here is a link to actual data on the effect of the pandemic on the American economy.  It's a website, "Track The Recovery," maintained by a group of economists led by Harvard professor Raj Chetty.  Bloomberg News has a good description of Professor Chetty's work, and the data on which it's based, here.

Among the most pointed findings is that "the recession has nearly ended for high-wage workers, but job losses persist for low-wage workers."  The money quote from the Bloomberg article:

On video calls with dozens of Democrats and Republicans in Congress, as well as Treasury officials and state and local policymakers, his message has been consistent: Get the virus under control at all costs—a task the U.S. has so far failed at pitifully. No matter how many businesses are allowed to reopen, normal economic life will not resume until their customers feel they’re no longer at risk of contagion. In the meantime, he tells them, target assistance to the people, businesses, and places that need it. There’s no use sending stimulus checks to people making $150,000 a year or cutting their payroll taxes. They have plenty of money; what they lack is places to safely spend it.

 

Why does the Republican Party support the death penalty and oppose abortion? The reason is economics, not ethics

The recent experience with the novel coronavirus and the economic effects of the shutdown gives us all an opportunity to calculate how much the pro-life party values life. Approximately 30 million Americans lost their jobs because of the coronavirus pandemic. The shutdown if continued through the phased reopening without being rushed will save perhaps 1 million American lives. It follows that to the (mostly Republican) politicians who wished to end the shutdown in the early summer, one life to them is worth not more than about 30 jobs. It also explains the Republican fascination with the death penalty. If the average death penalty case costs about $100,000 to try, which we can evaluate as equal to roughly 2 jobs for a year, but if only one out of every 40 people convicted of a death penalty crime is actually executed, then each execution produces roughly 80 jobs, a very decent return on investment from this coldly capitalist point of view.

The same analysis explains also the Republican position on abortion and right to life. If a healthcare team of four people can perform two abortions a day for 250 business days a year, equaling 500 per year altogether, then each abortion produces only 1/125 of a job for a year, far below the job production from capital punishment. What we have taken for years as Republican hypocrisy about human life may merely be economics. Further research is needed to determine the normative Republican value for job-life equivalence. I think it will turn out to be about 20 jobs per life.

Could the Pony Express have delivered mail from Utah to Oregon in 13 days?

This Washington Post story, about the Postal Service intentionally slowing down mail sorting and delivery, may explain why the mortgage statement that my lender sent from Utah on July 15 arrived at my house on July 28.

 

The Laquedem Coronavirus Relief Plan for cruise lines: out of site, out of mind

That's not a typo.  One of the good points of the CARES Act, which provides relief for small businesses across the country, is that to qualify, a business must be "created or organized in the United States or under the laws of the United States," and it must have "significant operations in and a majority of its employees based in the United States."  The CARES Act intentionally omits the major cruise lines from its benefits.  Congress should hold firm against the pleas of the cruise industry for a bailout.  Here's why.

Consider Carnival Cruise Lines, the most American of the major lines.  It consists of two entities, both publicly traded.  The United States entity, Carnival Corporation, has its corporate offices and operational headquarters in Florida.  It is, however, a Panama corporation, though its Seabourn and Holland America brands operate  through American subsidiaries from a Seattle office, and its Princess Cruises brand operates from California.

As for its ships: the Seabourn fleet sails under the flags of Norway and Bahamas.  Holland America's ships fly the flags of Malta, the Netherlands, Great Britain, and Bahamas.  The Princess Cruises ships are registered in Bermuda and Great Britain.  Carnival's own ships are flagged in Panama and Bahamas.

Carnival's management has chosen to register its ships in foreign countries and not site them in the United States for two main reasons: to avoid American income taxes and to avoid American wage and safety regulations.  I would be disappointed if Congress gave in to the industry's pleas for help.  I'd applaud any member of Congress who will tell the cruise line owners to look for relief for their foreign ships from Panama, Malta, and Bahamas, the nations they chose to support.

Jane Ace tells off a hospital that asked for a gift

On March 9 the Wall Street Journal published this article by Alexandra Samuel about feedback fatigue, describing how "in their eagerness to deliver a better customer experience" by incessantly asking for reviews and evaluations, "companies have created a new kind of bad customer experience: feedback fatigue."  Ms. Samuel cites two studies that discovered that customers don't like the surveys.  "Repeated surveys," she wrote, "may make customers reluctant to return."  She described a 2014 study as showing that "over-surveying by different organizations leads to exhaustion with all the requests for feedback."  

The article brought to mind one fine example of a business being less than careful with its customer outreach, way back in 1974.  The particular business was a New York City hospital, and it sent this letter to a former patient, Jane Ace.  I've shortened it a bit:

December 6, 1974

Dear Mrs. Ace:

As a recent patient you have seen how our hospital serves its community by providing a full range of medical services, offering a high level of nursing service together with physical amenities, enabling the hospital to treat the patient as a person, rather than a number.  We are appealing to former patients like yourself to contribute to the hospital's Capital Improvement Fund . . .

[Signed by the president of the hospital]

Mrs. Ace and her husband Goodman Ace were well-known radio personalities, and he was a veteran humorist.  He felt that the letter wasn't appropriate, and wrote the following response, which has stuck with me since I first read it in 1975:

December 8, 1974

Dear Sir:

As a former patient I did notice your high-level nursing service together with its other amenities, and I would dearly like to contribute to your hospital fund.  But, you see, on November 11 I died in your hospital.  Maybe we can get together later.

Sincerely, Jane Ace

 

The Laquedem coronavirus relief plan, part 2: the Airline Relief Plan

My previous post tackled student loan relief.  I'm ready to start on the airline industry's pleas for money.

The United States airline industry has been making the rounds on Capitol Hill, attempting to persuade legislators that it is so essential to the American economy that Congress should give it a priority position (early boarding?) when Congress hands out relief to businesses.  Certainly the airline industry is important to our economy, but that doesn't mean that any particular airline is itself important.  The planes, airports, and other infrastructure aren't going anywhere, even if their proprietors go broke.

Several commentators have pointed out that the major airlines would have been better able to weather the COVID-19 depression if they had used the profits of the past five years to pay down debt instead of buying back stock.  The major airlines spent billions of dollars buying back their companies' stock over the past five years, money that's no longer in their tills to get through downturns.  How much stock did they buy back?  Since March 2015 United bought back at least 134 million shares, reducing its outstanding shares by 35%.  American bought back at least 265 million shares, reducing its share count by nearly 40%.  American was so confident about its business prospects that even in 2020 it's bought back 2 million shares so far.

In the meantime ridership has plummeted -- even those Americans who can still travel don't want to -- as airlines have withdrawn from overseas service and cancelled many domestic flights, leaving airlines unable to cover their fixed operating costs.

The airlines profess that they are repenting of their sins.  The leaders of ten major passenger and freight airlines (including UPS and FedEx) have promised Congress that if Congress will grant them $29 billion in aid, they will not lay off any employees until at least August 31, they will not buy back any stock or pay any dividends until they've repaid the aid, and they will limit executive compensation in some unspecified manner.  They want the aid in the form of loans, not equity investment.  Here's a link to their letter.

I have a certain sympathy for the predicament in which the airline companies find themselves.  At the same time, it's time for them to eat some of their own financial cooking.  They've gotten away with serving "airline food" for years.  It's time for them to eat their own cooking.  Hence the Laquedem Airline Relief Plan.

The first element is that the United States will provide the $29 billion in aid, but with a few financial twists:

    1.    The United States will provide the aid, not as a loan, but by buying stock in the airlines, at the lowest price at which the stock has traded in the past three months.  For example, United stock hit a low of $21.28.  If the aid to United is set at $2.128 billion, then the government will buy 100,000,000 shares of United stock at $21.28/share.

    2.    The airline may buy the government's stock back at cost plus 6%/year simple interest, any time in the next 5 years, if the airline has made an operating profit for 4 successive quarters and if the airline is not borrowing money to buy the stock back.  I envision that the airlines that survive the depression will buy the government's stock back, a few shares at a time.

    3.    All existing stock option grants to management and the board of directors will expire 60 days from the date of the aid.  The option owners may exercise them within the next 60 days, or not at all.  The airline may not reprice them to allow the executives to exercise the options at today's price instead of the price at which they were granted.  This effectively makes the stock options worthless, which is the idea - since the senior managers and directors participated in the company's bad decisions, they should not profit from the bailout.

    4.    The airline will not issue any new stock options, repurchase any private shares, or pay any dividend until it has purchased all of the government's shares.

    5.    Executive compensation is capped at $750,000/year, or in the alternative at 30 times the salary of the lowest-paid full-time employee as of March 1, 2020.

I accept the industry's argument that it is something in the nature of a public utility, an essential service for American business and consumers.  In recognition of the claims of its managers that it provides a public service, the Laquedem Airline Relief Plan also has two operational requirements.  One is to provide better service to communities and the other is to improve the passenger experience in the air:

    6.    The federal government will require each recipient airline to provide daily passenger jet service to at least one community that had daily passenger jet service at any time since 1986 and that has since lost its jet service.  I picked 1986 because that's when the federal government deregulated the industry and stopped ensuring that communities that needed air passenger service would receive it.  The principle is the same as the one that gives electric power companies exclusive territory in exchange for their promise to serve everyone within the territory.

    7.    Within one year after receiving federal aid, each recipient airline will refit its coach sections to have at least 34 inches of seat pitch.  (Seat pitch is not the same as legroom.  It is the distance between a point in one row of seats and the same point in the next row of seats.)  The sale of any seat with less than 34 inches of seat pitch will be prohibited after a certain date.  If we taxpayers are going to save the airline industry we should require the lucky beneficiaries to improve the quality of the product.  There's no reason for coach travel to be comfortable only for people of the stature of Martin van Buren.

Let's use the airlines' need not just to make them improve their financial management but also to make them offer a better product.