Category Archives: Economics

Miscellaneous economy stuff

Obama’s War on Energy

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The Obama administration plans to block the construction of new coal-fired power plants unless they are built with novel and expensive technology to capture greenhouse-gas emissions[.]

There’s a surprise.  The EPA’s latest rule version on this subject looks to control CO2 emissions as an urgency exists in the minds of climate deniers (i.e., those who deny that the existing climate change is an ongoing natural phenomenon) to reduce humanity’s output of this “greenhouse” gas.

[T]he revised rule said it would propose an emissions limit of 1,100 pounds of carbon dioxide per megawatt hour for coal plants and 1,000 pounds per megawatt hour for large gas-fired plants.

…such stringent limits would ban new coal plants….

And

The rule is also a crucial stepping-stone for the Obama administration’s next big environmental project, emissions standards for the fleet of existing power plants.  Mr Obama has told the EPA to produce those standards by June 2014.

Never mind that CO2 is a trailing indicator, confirming the health of the planet.

The climate deniers’ minds—and those of their pet policy makers in the EPA—are made up, and they resent being confused by facts.

Another One of those Non-Existent Republican Health Care Alternatives

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Louisiana Governor Bobby Jindal (R) is implementing one.  Understanding the risks of accepting Federal money (no, he’s not reading my blog), he accepted a federal Medicaid funding cut and imposed it on the Louisiana State University’s health care system, choosing to privatize much of it.

The LSU System had operated 10 hospitals around the state and their network of outpatient clinics.  Outsourcing agreements have been worked out for nine of the hospitals and their clinics.

Jindal outsourced much of that.

[T]he first outsourcing deals, rolled out in April and June…private health providers have taken over the services previously run by LSU.

What are Louisianans getting for this?

Shortened emergency room waits and an eliminated prescription backlog in Baton Rouge.  A re-established gynecology clinic in Lake Charles.  The reopening of operating rooms in New Orleans and an orthopedic clinic in Lafayette that were previously shuttered by budget cuts.

And

[T]he numbers of graduate medical education residents have grown in Lafayette, a breast health clinic and a cardiology clinic have been added at LSU’s outpatient clinic site in Lake Charles, and a new psychiatry residency program is being added in Baton Rouge.

And

The administration estimates the state will save more than $100 million this year from the arrangements….

Hmm….

Minimum Wage

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…and costs to the consumer as well as the worker….

California is about to raise its minimum wage to $10/hr.  Washington (the state, not the capital, so far), has a current minimum wage of $9.19/hr, and that’s tied to inflation.

However, neither labor nor the wage paid for it occur in a vacuum.  Labor is required to produce the good or service being sold, and the wage paid the laborer—whether CxO or line worker—has a direct impact on the minimum price the producer must charge for that good or service in order to stay in business.

Labor costs amount to about 10% of the cost of a car sold to you at the dealership.  Not many cars are produced in California—or Washington—though, so minimum wage increases in these two states won’t impact the prices Californians or Washingtonians must pay for their cars.  Labor costs in the restaurant industry, though, run to 25%-30% of the cost of the meals sold, with the high end coming in sit-down restaurants, the low end in fast food restaurants.

Labor costs as a per cent of the cost of the the end product or service being sold vary widely across industries (vis., auto vs restaurant); I’m going to focus on the restaurant industry for illustration.

California’s rise in its minimum wage, a 25% increase over its existing $8/hr minimum, will have a commensurate impact on the cost of meals bought in these places.  In a sit-down restaurant, that increase in cost can amount to meal price increase of 7.5%.  Factoring in the impact on the business’ payroll taxes for Social Security and Medicare/Medicaid (and eliding the payroll tax that California charges), we get an additional labor cost increase through those taxes (7.65%) of 1.9%, for a total labor cost increase in the price of a meal of 9.4%.  That’s what consumers can look forward to in the inflation of their price for a relaxing dinner out.

Here’s where the tie to inflation comes in: Washington’s tying minimum wage increases to its inflation guarantees that that state’s inflation will be higher than it otherwise would: by that state’s labor cost impact on the prices of goods and services sold there.  This feeds back into its mandated inflation-driven rising minimum wage.  And the vicious circle is up and running.

Of course there are other ways California restaurants can deal with a 25% increase in labor costs.  In order to hold down the total cost of their labor force and thereby keep their meal price increase down to something more marketable, they can either eschew hiring the additional labor with whom they were considering expanding (and not expand), or they can lay off existing workers, or both.  Either way, the restaurants end up using fewer workers to do the same amount of, or more, work.

It’s important to note at this point that food service companies can function very well with low-skill—minimum wage—labor, while other industries (vis., auto assembly) need skilled labor, pay commensurately higher wages, and so are little impacted by minimum wage requirements.  It’s the low-skill, low-wage worker that’s hurt by minimum wage laws, yet it’s these guys who need to get that first job so they can start accruing the experience and training and skills necessary to get better jobs.  Or that need this second job so they can save a little, put a little by for their kids’ college, and so on.

Government-mandated minimum wage increases are job killers.  And they kill the jobs with the greatest marginal value for a nation’s economy and for the individual worker: the low-skilled worker on the cusp of having a job at all.

Be More Like Europe, Again

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Maybe this Obama meme isn’t so far off the mark, after all.  Here’s another example worth looking hard at.  The UK is privatizing its heretofore government-run Royal Mail service, selling a majority stake to the private market.

Royal Mail’s history dates back to 1516 when King Henry VIII ordered the creation of the first national post service.  In recent years, however, the company has battled with the rise of the Internet and email, leading to losses in five of the last 12 years and the loss of more than 50,000 jobs.  It now handles about 58 million letters and parcels per day, down from 84 million five years ago.

Business Secretary Vince Cable said the privatization would allow the Royal Mail to continue operating for six days a week, with a “one-price-goes-anywhere” service.

Does any of that sound familiar?

The UK isn’t alone in this, either.

Austria, Germany, and the Netherlands have all privatized their postal services in part or fully.  In June, Belgium’s postal service Bpost raised €2.9 billion ($3.7 billion) in an IPO.  By contrast, the US Postal Service is still government-owned.

And the USPS still is losing money hand over fist.

Be More Like Europe

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Maybe we should, at least in one area.

The Strasbourg-based European Parliament passed an amendment to limit the amount of transport fuel, such as gasoline and diesel, that can be obtained from food and energy crops to 6% of total energy consumed for transport by 2020, from 10% previously. … The new limit is meant to ease concerns about the amount of agricultural land that is turned over to growing crops for biofuel use….

There shouldn’t be any requirement, but this is certainly a step in the right direction.

Corinne Lepage, the lawmaker driving the legislation [says] “Taking indirect land-use change into account is important for the integrity of the EU climate-change policy.”

Because, among other concerns, “food prices could rise if crops are diverted from the dinner plate to the fuel tank.”  Our…environmentalists…need to understand this.  It diverts, here in the US, actual food crops—like corn—from the mouths of our poor to the gas tanks of “environmentalists'” cars.  And it jacks up the costs of food crops that substitute for corn.  And it jacks up the price of food that eats corn—like cows, pigs, and chickens.

Be like Europe.  At least in this.