Fight Crazy with Crazy

I’m sorry.  I don’t like getting political, but there’s political stuff here tied to some real important economic and financial stuff… And this one’s pretty cut and dry…

Presently, I count 47 House members that represent the Tea Party Caucus.[1]  Based on the November 2012 election results, I estimate that ~2.6% of the US population have empowered them to hold office.[2]  Almost one-quarter of those 47 are from Texas, who have been empowered by ~0.5% of the population.

There are presently 432 members of the House.[3]  The Republican Party en masse holds a majority, with 232 seats.  To the extent its Tea Party Caucus is not aligned with broader Republican Party interests, Republicans don’t enjoy majority power with only 185 seats.  To the extent Democrats try to do anything in the House with their 200 seats, they become obstructed by the Republican/Tea Party coalition of 232 seats.  Stalemate.

So 11% of House members – that ~97.4% of us did not vote for – now stand in the way of funding our government’s basic operations, which will shut down hours from now.  But that’s not the scary part.  The scary part is, come 17 October or thereabout, the US Treasury won’t have any more money to pay Federal debts if the debt ceiling is not raised.

The Tea Party Caucus has tied that and government funding to a list of demands, which predominantly include defunding or now materially limiting so-called Obamacare.  A bill that – like it or hate it – has been signed into law over three years ago.  Since upheld by the Supreme Court.  Its primary advocate for repealing lost the last Presidential election.

Now although I absolutely agree that our debts are getting out of hand and need to be pared back, this is a very dangerous game to play.  Either through ignorance, obstinacy or both, it is the ultimate in foolishness.  The US is the largest, most successful, most integrated economy of the world.  What happens to it moves the entire global economy and financial markets.  Because of our unique foundational role in the world, if a legitimate sense of fear of the US defaulting on its obligations were to begin spreading through the markets, it has the potential to set in motion a series of events that could utterly collapse the global financial system and usher in a depression to rival the 1930s.

In brief, the dollar would collapse.  The price of everything would skyrocket overnight.  Interest rates would spike.  What little lending activity that has come back since the 2008-09 global financial crisis would completely shut down.  So would our economy.  Mass firing would ensue.  The unemployment rate would climb dramatically.  The stock market would crash hard, destroying everyone’s nest egg.

Depending on the severity and protraction of the above, social stresses would start to develop.  We could see hoarding of supplies.  There could be gas shortages, and food and water could disappear from store shelves.  With a scarcity of basic survival supplies, crime would likely spike.  Gangs would roam from neighborhood to neighborhood looting those households that could not defend themselves.

To counter that, martial law would become imposed for an undetermined period of time.  Civil rights would be suspended until things calm down.  Rationing and price controls would be instituted by the government, until the economy comes back.  Which could be years.  And the world will spend the next quarter-century trying to rebuild a global economy, destroyed by a completely avoidable man-made event.  That is, if those increased global hardships don’t devolve world cooperation into global conflict.

This draconian scenario happens to nations all the time (just ask our many friends who have left their homes to live with with us here), when markets lose faith in their financial or political systems.  It just hasn’t happened to us yet.  Mostly because, so far, we have been governed by politicians who – albeit might have been self-serving or corrupt or not very bright – have at least not been complete, raving loony idiot children.

But at least the Tea Party Caucus members got to stick to their convictions, so that they could maintain the favor of the 1/38^th of America in their very, very gerrymandered districts who elected them.

The potential economic devastation from such political gamesmanship, could well end up far worse than what any terrorist could hope to inflict on us.  I urge all to think soberly about that last statement, and consider the extent to which these politicians’ personal aspirations might rival those who we regard true enemies of the state.

I understand that was a more extreme statement.  But I measure my words in proportion to the subject matter.  The potential dangers here are that extreme in my view.  And I know I might have miffed some conservative readers here (who haven't stopped reading after my first few paragraphs), because I just sound like I’m towing the Democrat Party line.  If I have you pissed off, good. You should be.

For the record, I am not a Democrat.  Nor am I a Republican.  I have absolutely no vested ideological interest or party affiliation.  It just so happens in this instance, the President is correct, and those that claim to represent the Tea Parties in Congress are wrong.  They have put the President in a situation, where to compromise, sets a bad precedent where any antagonist minority fringe can risk too much (for us all) for too little (for them).

Risking our creditworthiness in some political maneuver to castrate Obamacare… that’s not “crazy like a fox”.  That’s just crazy.  As crazy as it is, it isn’t totally as unbelievable as it might feel.  This is what happens when societies come under prolonged periods of economic hardship.  Desperate people start actually giving ear to the more radical voices, frustrated that their incumbent governments have not delivered.

The rise of communism in Russia and China, or fascism in Italy and Germany in the early 20^th Century for example.  Indeed in 1930, the Nazis became the second largest party in the Reichstag.  They won over business interests, successfully campaigning that their version of national socialism was not like Marxism, as the Nazis were not anti-private ownership of property.  (Maybe you can find some Princeton or Harvard grad to explain that to you.  Since some seem to like making Nazi references.  Just sayin'.)

And our depressions of the late 1800s through the 1930s gave rise to a host of third parties with more radical points of view as well.  And every single one of them disappeared into oblivion as soon as the economy got back to where it should be.  So pay attention Tea Party… the moment we’ve gotten this economy working again properly… you and your uncompromising ways are gone.

For all non-Tea Party Republicans, to the extent you can’t wait long enough for that to happen… to date, House Republican leadership has not demonstrated a willingness to split from the Tea Party and pass agreeable legislation with Democrats, combining their 185 and 200 respective seats (although that’s the rumbling as of a few minutes ago).  I have heard that off the record Republican leadership regards that act as being the end of their party for the next quarter-century.

I don’t disagree necessarily.  But consider two things.  One, until you get back to the art of the compromise and stop allowing the Tea Party to continually take us all to the brink, you risk destroying the entire nation for a quarter-century.  Which will destroy the Republican Party for at least that long.  Two, given its already internally fractured state, lack of leadership and a confusing platform that seems to embrace everything that this nation’s attitude and demographics are moving away from, the Republican party may have already come to an end.

I know you are in an existentially very tough spot, but sometimes the only way to fight crazy, is with crazy.  So get on it, guys and gals.  I don’t want that other party having too much power for the rest of my life.

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[1] Source: http://conservatives4palin.com/2013/04/reviving-the-congressional-tea-party-caucus.html.  There were 48, but last week Congressman Rodney Alexander of Louisiana’s 5^th District resigned.  AZ 1, CA 3, CO 2, FL4, GA 4, IA 1, KS 2, LA 3, MI 1, MN 1, MO 2, MS 1, NC 1, NE 1, NM 1, SC 3, TN 3, TX 11, UT 1, WV 1.

[2] Excludes Alexander, who last week resigned.  Of the 47, five ran unopposed in the general election.  For those five, I count all votes in their respective district as “for”.  If you count none in the unopposed races (with the view that all voters in that district had no other viable party alternative), that results in ~2.3% of population as having voted “for” the House Tea Party Caucus.  Voting results source: Politico, November 2012, with 100% reporting.

[3] Three vacancies.

New Healthcare Law Primmer

[I actually posted this privately yesterday,  Wed 25 Sep.  So it's a day late here]

I’ve been getting a handful of questions, especially from my friends in their 20s, about Obamacare (negative legacy label), aka the Affordable Care Act (shiny new branding initiative label), or “ACA”.  So here’s a download of some of my notes and thoughts, if helpful…

Presently and before the ACA law’s full force and effect arrives in 2014, ~100% of Americans receive health care services.  That’s not a typo.  If you have a problem, you go to the hospital.  If you don’t have insurance you are still treated (despite what certain provocateur documentary film producers might suggest).  And the ~85% of other Americans that actually pay for health care (or mainly, whose employers pay for it or have it government subsidized) will bear that cost of those uninsured.  It is estimated that each insured household pays about $1,000 a year more for health insurance to cover those who do not have health insurance (source: former President Bill Clinton, speaking with President Obama at the Clinton Global Initiative “CGI” yesterday).

Those uninsured number about 29 million (excluding 10 million illegals).  A statistical mosaic of the largest uninsured groups would be Hispanics (29%), aged 19 to 34 (27%), living in the South or West (35%), whose household incomes are under $50 thousand (46%).

Presently, as stated, most of the 85% Americans that already have health insurance get it through their employers or government subsidy.  For them, their choices are generally few.  Employers typically offer one provider.  And that provider offers maybe two to four options for the employee.  Even so, if you lose your job and are unemployed too long, you run the risk of losing coverage.  If you have a preexisting condition or otherwise actuarially fall into a greater risk category, you will likely be denied or charged very costly premium.  So that 80%, adjusted for the concreteness of their coverage, is an expected value quite a bit lower.

There are some very good and important things about the ACA.  It is really about a lot more than just adding ~10% of Americans to the club of the insured.  It’s about mandating insurance that actually insures you.  And hopefully affordably – after all, that’s the first “A” in “ACA”.

Under the ACA, you cannot be turned down for a preexisting condition anymore.  You will be charged the same rate, regardless of condition, age or gender (women pay 40% more than men presently).  Lifetime caps are eliminated.  So for example, if your child develops leukemia at age six, your coverage won’t run out when he or she reaches, say 17, because the larger than normal expenses have run their course of coverage.  This is an effective death sentence for your child if you are not wealthy.  Young adults also now may stay on their parents’ plans until they are 26.

There is much however still up in the air.  It is yet to be determined whether it will reduce the cost of health care.  Net savings to the Federal government over the next decade is supposed to amount to about $200 billion.  The source, the Congressional Budget Office, took the unusual measure of estimating the savings in the next decade after this one.  They think that savings could approach $1.2 trillion.  I would be careful with 20-year projections though.  Actually, be careful with anything beyond 20 months.  These are the same people that got the cost of Social Security, Medicare and Medicaid wrong by tens-of-trillions of dollars (since the 1960s).

The ACA mandates that health care providers spend 80 cents of every dollar on actually providing health care (rather than on some of their seemingly more preferred past-times like paperwork or litigation or buying-off politicians), or else they literally have to send you a check back in the mail for the amount not spent.  That I think is already having an impact reducing health care inflation – which has been triple regular inflation in at least the last decade.  Also, the providers will gain a windfall of potentially 29 million new customers (aiding maximizing profit through volume, mitigating possible losses from pricing).

The White House is on a public relations offensive as we speak, encouraging people to enroll on the exchanges.  Especially young people, who don’t have anything wrong with them to pay for (aside from the myriad of medicated anxiety deficiencies that suddenly seem to have popped up in the past couple decades).  The White House owns the ACA and due to much public misrepresentation by opponents and poor marketing by proponents, is unpopular right now.  The White House has a political interest in getting the exchanges populated with really healthy young people soon on, to induce providers of health care to offer lower prices.  Which really benefits us all in the long run, because it creates a stronger risk-pool.

All who do not have insurance provided by their employers can competitively bid for their plans on these state-based exchanges, that begin opening in six days on 1 October.  (For people in those states that have opted out, mostly red states, a Federal exchange will be available.  Locally, NY and CT have state-based exchanges; NJ has opted out for now and will have the Federal one.)   It’ll basically be a lot like buying a plane ticket or booking a hotel room off your favorite price-finder website.  And these exchanges will have many more health services providers offering you various packages than what might be traditionally offered by your employer.  Being a free market animal (and having lived through the efficiencies that developed in the stock markets from price transparency and access developed through the 2000s), I just feel this has to have a net effect of lowering the price of health care coverage.

And it might be more than 29 million eventually, if businesses stop offering health benefits (which also remains to be seen).  The ACA mandates that companies with 50 or more employees offer plans or else by penalized.  Creating a potential dilemma encouraging Darwinian behavior, which is what happens in free markets.  Employers in the zone of greater than 50 might seek to realign their workforces toward employing more “part time” workers by basically making more numerous employees work not more than 29 hours per week (“full time” triggers at the 30-hour work week).

It is factually inaccurate beyond the occasional anecdote, as some have been suggesting, that this is presently occurring on a large scale.  The vast majority of recent job creation has been full time – nonetheless weak as they are hired at lower wages (but that’s another conversation).  The mitigating factors to this risk are that the number of greater than 50 employers is small, and 90% already offer health coverage. And packages are available for smaller businesses to group up and buy plans with the pricing power of a large employer.  The theory is, the inevitable gaming will not materially compromise the situation.  Again, the verdict is presently out on that one.

So in six days, millions of currently uninsured will have the privilege to enroll to purchase health insurance for themselves on these exchanges.  By “privilege” I mean they will be required by law to do it or else, if not enrolled by 31 March 2014.  If not, they will be charged a penalty at tax time 2015 and each year going forward forever until they do enroll.

If you don’t enroll, in 2014 you will be charged the greater of i) $95 per adult and $47.50 per dependent child, not to exceed $285; or ii) 1% of household income (over a $9,750 threshold).  This rises by 2016 to the greater of i) $695 per adult and $347.50 per child, not to exceed $2,085; or ii) 2.5% of household income (over the threshold).  Going forward the minimums are adjusted for inflation.

So math example: A 28 year old uninsured single woman earning $45,000 a year elects to not purchase health insurance in 2014.  $45,000 - $9,750 = $35,250.  $35,250 x 1% = $352.50.  $352.50 is greater than $95, so she owes $352.50 come 15 April 2015.  The same math in 2016… $35,250 x 2.5% = $881.25.  Which is greater than $695, so she owes $881.25 come 15 April 2017.

Disposable (after-tax) income per person in the US is about $33 thousand and savings rates bounce around 1% to 6% annually nowadays.  That means there's about $300 to $2,000 left over for each person every year.  These penalties which are likely less than the mandated cost (reviewed below) then are a big chunk of money to the every-day, previously uninsured person (the primary reason why they aren't paying for it in the first place).

Potentially mitigating the cost of this mandated purchase of health care, if you have an employer that offers you a health care plan (that you must pay for) that costs more than 8% of your income, and you decline it, you are exempt from the above penalties.  Also, you might receive a check back from your provider if they didn’t use all the money on providing service.  Further, for those purchasing insurance off the exchanges, at least initially, incomes approaching up to four times the poverty level (so up to ~$45 thousand for individuals and ~$95 thousand for households of four) will be eligible for sliding scale subsidies that will reduce this burden down to as little as 3-4% of income (for incomes near poverty level).

So the big question is, what’s cheaper?  Pay the penalty or buy the insurance?  No one really knows right now, including the President.  It’s simply too early to see what the market forces will clear these transactions at.  There is some anecdotal evidence showing demonstrable reductions in health care premium.  Some show increases.  Both opponents and proponents are totally cherry-picking their anecdotes right now, so be careful what you read.  (Unless of course, it soothes your preformed ideological bias.)

The President and former President Clinton yesterday addressed the ACA at the Clinton Global Initiative.  They referred to these plans as costing only as much or less than your cell phone bill.  What they don’t mention is they are referring to the very best regional anecdotes, the cheapest possible plans (which obviously don’t cover that much), probably even feathering in some assumed rebates and subsidies.

Right now, the average cost of health insurance is ~$180 a month for individuals, ~$400 for families.  Half of these policyholders pay ~$150 per month for individuals, ~$350 for families.  The cheapest in the Union for individuals is ~$120 a month in Iowa; the most expensive is ~$380 in New York.  Families range from ~$260 to ~$930.

Again, these are wild numbers that are going to be all over the map now going forward until this brand new form of market matures over several years.  But if there’s to be any reduction in costs, it sounds like we will be mandated to individually paying about $120-150 per month with a potential for subsidies to reduce that further, or else pay upwards of $500-$1,000 a year in penalties and be provided no services.  That array results in about a 50/50 indifference line in gaming being forced to pay for something vs. paying for nothing.  (Message me for explanation.  But trust me, it’s a really loose, unscientific one.)

I approve of how the law strengthens health services for all Americans.  But I wouldn’t be me if I couldn’t rant about something for a bit, so...

The big rub about all this (for me anyway) was the perverse way it ever became law of the land.  Back in 2010, it couldn’t get a filibuster-proof 60 votes in the Senate.  Even though Democrats owned government at the time (both chambers of Congress and the White House).  So they passed it through a parliamentary procedure called “reconciliation”, which only requires 50+1 votes.  Which it got, and it became law.  But you can’t qualify for that procedure unless the proposed legislation is, among other things, neutral to the Federal budget.  So they circumvented any potential costs for the Federal government, that might have caused the CBO concern when scoring, by simply just making us citizens directly pay for it ourselves by law.

Which has never been done before.  It opens up the slippery slope going forward that our Federal government, from time to time when government is owned by one party, may now mandate us to legally do whatever, if it’s that party’s view it’s for our own good (read, their own good).  Eat Your Broccoli Tax.  Give Me 25 Push-Ups Tax.  Abortion Tax.  Same-Sex Marriage Tax.  Elected Representative Appreciation Class Attendance Tax.   Use your imagination.

Here’s the more twisted part.  The law survived a Supreme Court challenge in 2012, which was decided in a 5-4 decision, with the Chief Justice splitting from his conservative background to rule for the Democrat sponsored law.  In his opinion, the individual mandate to purchase health insurance is upheld on the grounds of Congress’ taxation powers.

In other words, the only way it could have gotten passed into law in 2010 is if it effectively is not like a tax (budget neutral through reconciliation), yet it subsequently gets upheld as a law because it is like a tax.  If you're tuned out, turned off, confused or upset about all this, I certainly understand.  You can’t make this stuff up.  Not even Ted Cruz, despite his commanding, Major Ivy League incubated intellect (I just had to).

In my view, the Supreme Court has opened up the back door to allow extreme Federal governments to impose any range of lifestyle choices on us, under financial penalty for non-compliance, all because the penalty is upheld under Congress' powers of taxation.  I'm not comfortable with that.

But here’s the nuance that I can appreciate regarding health care.  It is, as its proponents posit, an inseparable shared responsibility.  Unlike, say, auto insurance.  If you don't pay for auto insurance, you can't drive a car.  That's it.  End of story.  If you don’t pay for health care insurance, you are still provided services – at least for acute care when you show up at the hospital, right?  And then those who do pay for health insurance pay for you, as the cost burden gets passed from the hospital to the benefits provider to you in the form of higher than otherwise premium.

To be fair then, for those that choose not to pay for health insurance, they should also elect to not be treated the next time they are stabbed or shot or their heart explodes or they have a stroke or whatever.  But that’s obviously not how our society works.  We take care of them.  Those uninsured, whether they can’t afford it, are denied it, or choose not to have it are freeloading off of those that are insured.  So with the ACA, the government has decided to cover those that can’t afford it, eliminate the possibility of being denied it and force anyone left who wishes to not pay to cough up the dough.

To conclude, there are many very good benefits from the new law.  It is unclear if it will reduce costs, but my gut tells me it will.  I don't think it will cause a material and systemic disruption to labor markets.  My mixed feelings reside with, not what it offers, but rather the way it has been imposed on us.  And I, like everyone else, some years from now will probably be OK with it and accept it as just yet another bill I can barely afford but need to pay.  (But then again, I like broccoli.)

Honest Day's Wage

Today the most populous state and largest economy in the Union, California, announced that it will raise its minimum wage from $8.00 to $10.00 per hour by 2016.  This will be well above the current Federal minimum standard of $7.25.

For reference, the average of the states that have one is $7.44.  The highest right now is Washington, $9.19.  The lowest is Montana, $5.15 (moot, since you must pay at least Federal).  Nations like France, Ireland, Belgium, Netherlands are ~US$11-13.  The UK, Canada, Japan are ~$US9-10.

A quarter-century before there was a legally mandated one, Henry Ford adopted the minimum wage for his workers in 1914.  Five bucks for an eight-hour work day.  That was about $0.63 per hour then, or about ~$14.40 in today’s dollars.  If that sounds like a lot for a minimum wage, it was – it was double what his competitors paid (and they made their guys work nine hours a day).

But it wasn’t until the 1938 Fair Labor Standards Act that Federal minimum wage, among other things, was instituted nationally.  It started at $0.25 per hour, about $4.14 in today’s dollars.  Since then minimum wage has averaged $7.15 in today’s dollars.  So today’s $7.25 is basically in line with the lifetime average.  (This is not to say that it is necessarily at the “right” level.)  It spent almost a decade (~1963-1971) around ~$9-10.  And it’s bounced around ~$6-7 from the Reagan years forward.  (Again, all in today’s dollars.)

So it’s not out of whack from historical average.  But it has been stuck, in real terms, at pretty much the same level for about three decades.  I know this is a politically sensitive subject.  But one should also bear in mind that what business is willing and able to pay for labor is not simply a function of who might be in the White House or control Congress.  That’s sort of more the stuff of centrally planned economies.  And I think we know how they worked out.

In my view, the greatest culprit responsible for stagnating American real wages is the growing crescendo of legitimate international competition.  In short, we had none at war’s end, 1945.  World War II was fought on the soil of any would-be industrial competitor, and their infrastructures were shattered as a result.  Over the decades they rebuilt.  Or shall I say, we rebuilt them – either through direct Marshall Plan style loans or investment, (e.g. Western Europe and Japan), or simply by buying their stuff (e.g. basically the entire world, notably China).

(And their UN reps still don't pay their NYC parking tickets.  Sheesh, your welcome.)

With each decade, more and more nations now become capable of offering viable skilled and semi-skilled labor, still at a wage lower than what we might have otherwise been able to pay domestically.  And trying to put up walls to stop that (e.g. not “exporting jobs” to the cheapest viable labor source, or erecting trade barriers), I would hope we all understand by now, doesn’t work in the long run.  It stifles trade.  Coddling certain industries just weakens them over time.  Our businesses become uncompetitive if they cannot tap the lowest cost labor that their competitors are.

A recent poignant example is two of the Big Three Autos being thrown into bankruptcy (finally) a few years ago, not to mention their host town, Detroit.  Bankruptcy allowed us to abrogate way-overpriced benefits packages and right-size assembly plants to – in the case of GM – make a handful of cars people want instead of a dozen they don’t.

Protecting overpaid jobs that make inferior products is popular for getting the votes, but over the long run it weakens the nation on the whole.  Raising wages likewise is a popular vote getter, but if not done right, can have the same bad consequences.  We can raise wages in the US when competing with Western Europe, Australia, Japan or Canada because all their wages are higher (and total labor costs even more so, because their benefits are greater).  But we can’t be competitive with China, South Korea, India, Brazil, Mexico or Eastern Europe because their wages are lower.  A lot lower.

And it is that latter list of nations that I feel you can blame, to the extent you must, for more recent American wage declines (not to mention we’re kind of still clawing out of the worst recession of the post WW II era).  Those nations have only in the last decade or so really “arrived” in terms of offering a viable alternative of, not just unskilled, but now more and more skilled labor.  This has the effect of compromising, really for the first time for Americans, middle class wages.

The very wealthy do not have these problems.  Their wealth is invested and grows as capital markets flourish.  And this is why you see the gap widening.  Not because today’s very wealthy wield powers greater than the government’s and have somehow gamed the system to their advantage, to the likes of Rockefeller or Carnegie or Morgan.  I reject that conflation.  They certainly do have significant influence over government.  But the government is a much more powerful beast today, as compared to a century ago.  And interests opposed to the wealthy can tame it to do its bidding as well.

The biggest factor now, say in the past 15-20 years, is higher and higher levels of US wage earners – not just unskilled any more – compete with lower-cost global labor supplies.  It’s a function of free global commerce.  With global exchange, comes an equalizing of living standards.  The higher ones come down or rise slower, and the lower ones come up or rise faster.  Some decades from now possibly, we will all go through this once again, if we can stabilize Africa and/or the Middle East.  And until the standards of living for those lesser nations generally approximate ours, we are going to lose business to them whenever we attempt to raise the cost of labor where we directly compete.

The minimum wage is the low bar that sets the rate for all the rest of us higher income earners.  There is value for all of us not having it too low.  And it is thanks to the unions of decades ago, who set that standard really for all workers in America.  We owe them thanks for that.

But to the extent the unions of today push for higher wages in industries where we compete against those lower labor cost nations, in the end, it will just weaken our economy.  It won’t begin to be a good idea until certain of their labor costs start to approach ours.  And in some areas we do see business leaving China for example, coming back to the States, because the wage gap has closed to a degree that the intangible grief of dealing with Chinese impositions, shortcomings and corruption is no longer worth what’s left we might save on labor costs.  But that’s only anecdotal right now, not trend.

Right here, right now, September 2013, raising the minimum wage is a bad idea.  I am not against raising wages at the right time and where we can compete.  It’s just, the timing is very wrong right now.  Raising the minimum wage has a number of effects.  The first, most obvious, most immediate, most popular is, it puts more money into the hands of people that will likely save none of it and spend it all.

This has an immediate stimulative effect to the economy.  Which is good.  This is the part everyone readily understands, and the largest reason why it’s a cheap political ploy to gain favor with the crowd.  By the way, the only specific detail to the President’s economic plan that I could find, was suggesting raising the Federal minimum wage from $7.25 to $9.00.  The rest suggests promise, but is too vague.  (It’s on the W.H. website.  Check it yourself.)

But down the road you have two, not so good effects to raising wages in the absence of increased real output.  The money has to come from somewhere, right?  Raising wages is an immediate reduction of profits for employers.  So soon after the government raises the minimum wage on them, like in California today, business owners sit down and start trying to figure out how to recoup those lost profits.  The most common way is they immediately try to pass on to their customers the increased costs by raising prices.  The other is, they either hire less people, or fire some of the ones they have, and make everyone left work harder.

This is all inflationary.  There’s just more dollars sloshing around the system for the same, if not less, amount of goods and services now offered at higher prices.  It also reduces real output.  The money could otherwise have been spent to hire more people and expand the business.  In the end on the aggregate, those that received a higher wage, just have to pay that much more for the same goods and services due to inflation.  As well, they now live in a weaker economy, increasing the threat that they’ll just get fired.

But most people don’t think beyond, “hey how about I give you more money, and you just keep doing the same exact job you have been doing.”  Who’s going to say "no" to that?  I wouldn’t.  I will go on record and confirm that I have never once turned down a raise, because I was concerned that having more dollars in my pocket might create inflation for everyone else and possibly compromise certain other expansion goals for my employer.  I’m just not that much of a team player, I guess.

But a little bit of inflation is a good thing.  When times are good.  In the presence of real demand, it allows for businesses to raise prices and make them stick.  With that marginal increase in profit, they can expand business and thus real economic output.  And the positive psychology of putting a little more buying power into the hands of your employees makes them happier.  They might work harder without even having to ask them (I said “might”).  They might feel more confident about spending, which further improves the economy.  Much in the spirit of Henry Ford, who realized that his workers weren’t just a source of labor – they were his potential customers too.

But not now.  The economy is too weak.  It is only just finally staging a real recovery in my view.  So the last thing it needs is a kick in the ribs.  Just this year, it’s already trying to absorb the expiry of lower personal income and payroll tax rates, as well the effects of the so-called “sequester”.  Further, businesses are right in the middle of getting their footing with respect to the new health care issues.  So they need a little time before they get hit with another round of higher employee costs.  And also, the… how do I say this… absolute, narcissistic, ignorant insanity going on in the D.C. Beltway lately… it’s not helping.

(It is actually testimony to how vibrantly things might be building, as the economy putters along at all in the face of all that.  Just imagine how we’d be doing if we could maybe have one whole year of not getting smacked in the face every week with incompetent and bankrupt political leadership.)

But I digress… Let the economy get some real legs before you hit businesses with yet another drag like more labor costs.  Also, I am concerned about the Fed in that it has more than tripled the size of its balance sheet over the past few years.  They have been (and still are) printing gobs of dollars to stave off the deflationary effects of the mild depressive state that has befallen us.  So I’m suspicious that any real uptick in economic growth might now generate more inflation than anticipated, until the Fed can deflate its balance sheet.  Doing another inflationary thing around that – like raising labor costs – is unwise.

Let the economy grow for real for a while (which hasn’t happened yet).  Let the Fed demonstrate they can unwind as smoothly as they wound up their balance sheet.  Show real growth with inflation under control.  That’s a scenario that would be borne out over the course of the next few years.  At that point, it would be appropriate to raise the minimum wage.

And at that point we should raise taxes a bit too, if we want to pay down debts and allow our government to continue to provide the level of services they’ve sold to us in exchange for our votes over the decades.  (Otherwise, yeah.  We are going to have to cut things like food stamps.  Democrats can call Republicans mean for suggesting that.  But if you want to live in reality, the money has to come from somewhere.  And there’s only so much we can print out of thin air, with our current debt and output levels.)

But suggesting raising the minimum wage right now is almost perfectly wrong timing.  And if that’s anyone’s best idea about improving the economy, then they really don’t have squat.