Tag Archives: political economy

Another Disregard for Congress

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Congress passed the Fair Labor Standards Act in 1938, and it last was amended in 2007. Among other things, the FLSA allows the Labor Department to define who, in a business, is a manager and who is not.

There are two problems with this, either of which alone is sufficient to demonstrate the need for a further amendment. One problem is that it lets government dictate to business owners—private citizens—how they will run their businesses by dictating to them who they may have on their management teams.

The other problem, the one of interest in this post, is that Labor’s definition of who can be a manager is determined by the man’s salary and not by what he does. This definition matters because managers are “exempt employees,” that is, businesses do not have to pay them overtime for working more than full-time hours (nominally, 40 hours per week or 80 hours per two-week periods; although Obamacare muddles that definition).

Sean Higgins, of The Washington Examiner, had some thoughts on that earlier. I’ll just comment on a couple of them here; RTWT.

The president and administration officials have indicated they plan to increase the $23,000 minimum amount a worker must make before his employer can opt to exempt him from federal overtime rules….

Groups such as the liberal Center for American Progress, which has close ties to the White House, have called for the threshold to be raised to $50,000.

That’s the set up.

Higgins then quoted Joshua Parkhurst, a New York labor rights lawyer:

A fast-food restaurant can slap an “assistant manager” title on someone and…that exempts them from overtime. The white-collar exemption is far and away the most litigated issue under the act.

I’ll ignore the fee-generating litigation Parkhurst alluded to; the “error” is his implication that being an assistant manager is, of necessity, a bogus status. How many managers does a fast-food restaurant (or other small business) need? Exactly one. Who’s in charge on the shifts where the manager isn’t working? Somebody? Anyone? Answer: the assistant manager. Businesses doing 24-hour operations need at least three assistant managers—one for each shift (because the day shift’s manager would benefit from the help, and so the business would), plus one (or more) to fill in when someone gets sick or goes on vacation. How many more properly is a business decision, not a government one.

Doubling the threshold, the Center for American Progress argues, would force businesses to pay workers the overtime they are due or force employers to raise salaries to meet that level. “The average worker works 11% more hours than he or she did in 1975. If we as a nation could afford overtime rights then, we can afford them now,” center policy analyst Brendan Duke wrote….

This, of course, is nonsense. Raising the threshold (not even doubling it) would not at all force businesses to pay overtime or to raise wages. Businesses also have the option of restricting their business hours. They also have the option of restricting those workers’ hours and hiring temporary, part-time help. The former could harm the business, but it’s a business decision whether the higher labor costs or the reduced business hours would be the less harmful. The latter would be good for the temporary hires, albeit their hours and income would be uncertain. It would harm the existing workers, though, by capping them, ending their upward mobility and limiting their ability to build resume material for later, better jobs. This is what most of the workers in this sort of business are doing anyway—getting work experience and looking to improve themselves.

Or, the businesses could (and this is the most likely alternative) simply cut back on the benefits provided in order to compensate for the increase in labor cost from government’s redefinition of “manager.”

And the pseudo-logic that, just because “we as a nation could afford overtime rights” 40 years ago when we worked less, we surely can afford to pay increased costs today is breathtaking to hear from an “analyst.” Or maybe not.

Finally, here’s Parkhurst, again:

The point is, if you are shifting someone back and forth from administrative tasks to manual labor, they aren’t a manager. And slapping a title on them doesn’t change that.

This, too, is nonsense. By Parkhurst’s logic, “if you are shifting someone back and forth from administrative tasks to manual labor, they aren’t a” laborer. And calling him that doesn’t change that.

This gets to the crux of the matter. What makes a man an assistant manager is what he does, not how much he’s paid. And what he does is a matter for business to determine, not government. Or a “labor rights” litigator.

The FLSA would benefit from one more amendment, and so would the country.

Economic Viability of Wind Energy

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Tim Phillips, in The Wall Street Journal, quoted Christopher Flavin, of the Worldwatch Institute, as saying in 1984,

Tax credits have been essential to the economic viability of wind farms so far, but will not be needed within a few years.

It’s been a few years. It’s been 30 years’ worth of “few.”

In all, wind energy “generators” get $56.29 per MW-Hr in Federal subsidies. To put that in perspective, natural gas gets $0.64, and nuclear power $3.14.

These guys are free-loading off you and me, and it’s time to put a stop to it. They need to stand or fall in the free market: if their technology is ready for prime time, they’ll have no trouble. If their technology isn’t—after 30 years—they’ve had enough of our prop-up money.

Cut off the subsidies—or more accurately, do not renew them (they expired in 2013) with finality. While the new Congress is about it, it should cut off those natural gas subsidies (those for oil, too, even though they’re similarly just walking around money) and the nuclear energy subsidies, also.

The free market is a much better watchdog for energy production than the Federal government ever can hope to be, no matter how honest or diligent those bureaucrats and regulators might be.

The Taxpayer and Union Pensions

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Here’s the state of the Pension Benefit Guaranty Corporation, a Federal government entity set up to insure union-negotiated pension plans.

Overall, the PBGC has total assets of $90 billion and total liabilities of $152 billion.

The multiemployer subset of that, the section of the PBGC that “guarantees” union-sponsored pension plans to which groups of companies belong, has total assets of $1.8 billion and total liabilities of $44 billion.

The single employer subset, the PBGC section that “guarantees” the pensions of individual companies, has total assets of $88 billion and total liabilities of $107 billion.

The reason for this is that what are being insured are not just any old pension plans, but defined benefit pensions in particular. Recall that these are the plans that guarantee a pensioner a set amount of money every month for life, regardless of how much money the pension plan actually has in it. Somebody has to make up the difference and make the payments, or the plan goes bust, and the pensioner gets nothing. With the PBGC, that guarantor is you and I: us taxpayers.

Of course, the PBGC proclaims that it has never taken a penny of taxpayer money, and that’s true. But the PBGC has never been in worse shape, either, and it’s deteriorating rapidly. Last year, the PBGC was in the hole only $36 billion, compared to this year’s $63 billion pit.

The PBGC also proudly proclaims its mission is to

encourage the continuation and maintenance of private-sector defined benefit plans.

Fine. Congress, as part of the budget bill it will pass next winter, should cut us taxpayers out of this corporation altogether. Congress should spin off the PBGC into a wholly private sector insurance corporation with no ties to the Federal government at all. Let the new company prosper or fail entirely on the private sector merits of encouraging and insuring private-sector defined benefit plans.

Pass the Bill, Anyway

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…and force President Barack Obama to sign it or to veto it. On the record. Either way, it shapes the 2016 elections, and if Obama actually signs, it’ll be good for the country.

Obama has said he’ll veto

a potential agreement to permanently enact tax breaks on business investments in new equipment and research and development as part of a plan that would renew dozens of expired tax breaks for businesses and individuals both.

Obama threatened his veto even before any such plan actually has been developed and floated. Because you have to veto the bill before you can find out what is in it, away from the fog of the bill writing.

Obama said, through his Deputy White House Press Secretary, Jennifer Friedman, that he would

veto the proposed deal because it would provide permanent tax breaks to help well-connected corporations while neglecting working families[.]

This, of course, is nonsense. Corporations don’t pay a lot of taxes, anyway; they pass what they pay on to their customers, including working families and unemployed families, in the form of higher prices. Contra Obama, the best way to help families is to leave more money in their pockets through lower taxes and to put more money in their pockets by getting government out of the way of the economy, so that growth can occur, hiring can occur, pay raises can occur.

Pass the bill, and force Obama to do something besides talk.

Collective Social Action

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A practical lesson from the People’s Republic of China on societal collective action.

When a fabric company called Jiangyin Xueyuan Textile Co collapsed, the troubles soon cascaded through other firms in this mill town.

A machinery maker, paper producer, manufacturer of faux-wood flooring and textile maker had one thing in common. They had promised, in the event of default, to repay the loans taken on by Xueyuan.

Indeed, they had all guaranteed each other’s loans, promising to pay the lender should one of them fail. Yet in the PRC’s current economy, they’re all having trouble making their own payments, and some have, as a result, refused to honor their guarantees of the others’.

Xueyuan’s court-appointed bankruptcy administrator, Zhang Fuliang, had this to say on the general practice:

[T]he big problem among private firms is that you owe me, I owe you, and in the end, if something goes wrong, then everyone gets tangled up together[.]

A policy outcome likely will look like this one: The People’s Bank of China, the PRC’s central bank, has lowered its benchmark lending rates, in the expectation that “private” and “commercial” banks will lower theirs commensurately and thereby stimulate the PRC’s economy. However,

banks likely will hesitate to lower the cost of loans for fear of hurting their profits.

Those profits aren’t only tied to the spread between the banks’ deposit interest paid and loan interest collected. They’re also tied to the likelihood the loans will be repaid at all. When an individual firm fails, the loan is lost, but the loss is limited to the single firm. When an individual firm fails, and the network of fellow firm guarantors default on their guaranty, the single loan still is lost, but now the bank must worry about the credit worthiness of each member of that network of guarantors. That’s going to hold up interest rates for the entire network as a hedge against the loan’s default—and as a hedge against default on more of the loans the network is guaranteeing for each other. And as a hedge against the loans made to other networks. And….

Hmm….