Unintended Consequences

Inflation on some key commodities over the past two decades:

Things with fairly inelastic demand that have been around forever – food and cars and the like – held fairly steady.

Technology in unregulated areas, driven by the free market’s desire to help people keep up with the technological joneses? In free fall (and that’s not even counting price per unit of performance).

Prices in areas heavily regulated by and/or dependent on government? Skyrocketing.

Questions?

But What Could The Problem Be?

Warehouse district “geek” bar Byte is closing next week after eight months in business.

And while restaurants and bars come and go fast, Byte had one feature that drew especial attention; they built their business model around a $15/hour minimum wage from the ground up.

And kudos to a company who does what they think is the right thing.  More power to ’em.

Problem is, they needed that “more power” more than they thought:

“While we have enjoyed a steady and loyal customer base, we’ve also struggled with getting the volume necessary to make our business model fiscally viable in this location,” the post said… [Co-founder Travis] Shaw told the Business Journal in Decemberthat the inspiration for Byte sprouted from their frustration of a majority of restaurant employees not being able to earn a livable wage. Byte hired around a dozen employees, each one making $15 an hour with benefits, plus vacation time.

“This was what motivated us to start out on our own,” Shaw said. “I’m passionate about food, but more passionate about the system and a business that can sustain its workers.”

Well, I guess your workers are going to have to “sustain” themselves, now, aren’t they?

“Too Cynical”, Or Just Sufficiently Informed?

Joe Doakes from Como Park emails:

 

All that hype about the wonderful Obama economy turns out to have been . . . hype.  It’s not wonderful at all.

The solution chosen by the Federal Reserve – raising interest rates to throw the brakes on rampant inflation – turns out to have been the wrong solution.

Was the wrong solution chosen because the economic numbers were wrong?  Because their analysis was wrong?  Or because the President who got elected was the wrong person and Lord knows, we can’t allow That Guy to have a robust economy?

Yes, I am that cynical.

Joe Doakes

No action on that bet.

Goalposts On Wheels

Joe Doakes from Como Park emails:

The figures are in: median income was up last year.  Everybody made more money.  The Obama Recovery is a complete success.

In completely unrelated news, which in no way detracts from the amazing brilliance of the Light Bringer’s economic miracle, we changed the way we count median income.

Looks as if the numbers are no longer drawn from fake reports, they’re cut from whole cloth right at the DNC headquarters and pasted directly into the newspaper.  If only we had a cadre of trained, professional investigators who could critically examine press releases for believability, much less veracity.

Joe Doakes

If only.

Creative Clash

Distort the economy of a sector, an industry or a city to benefit an industry, a policy or a class of people, and you’re going to cause unintended consequences – almost all of them bad, at least for someone.

Fifteen years ago, the NPR-listening, Whole Foods-Shopping, Volvo-driving set nodded and snapped their fingers to the beat of Richard Florida, who wrapped up a bunch of toxic economic interventions in a bunch  of artisanal wrapping paper and slapped a name on it – appealing to the “Creative Class” – that was marketing genius, making the children of America’s upper-middle-class feel like their apps, their hedge funds and their vegan restaurants were part of something Big and Important.

Cities – or rather, city planning wonks (who love to see themselves in that Creative Class – fell all over themselves to engineer cities to draw this class, on the promise that they’d spur economic growth.

The results?   Well, I predicted this – and now, Richard Florida himself is acknowledging it:

The rise of the creative class in such cities as New York, Washington, and San Francisco did produce economic growth—but mostly just for those who were already wealthy. The poor, and especially the working class poor, were right out of luck. They were priced out of the city and driven out to the suburbs, where they created the kind of urban problems known only to the cities. The modern city is the greatest economic engine the world has ever known, but these days it seems to run only for the aid of those who need its benefits least. When the rich, the young, and the bohemian revitalized Austin, Boston, and Seattle, they induced a cycle of soaring prices and class replacement. The creative class brought an income inequality that hadn’t been predicted. Florida could call them a new class all he wanted. They proved to be merely the children of the old white-collar meritocracy, grown doubly rich from the rising tide of urban renewal.

So, in The New Urban Crisis, Richard Florida takes a long second look at the nation’s cities. He doesn’t admit that he had been wrong in 2002 with The Rise of the Creative Class, mostly because he doesn’t think he was wrong. The city progressed just the way he described. But what he has called the “externalities” have mounted to such an extent that they now outweigh the gains he saw 15 years ago. The creative class triumphed, and his prize cities have turned into wealth preserves—the old gated communities of the suburbs, transplanted to the urban core.

The whole thing is worth a read.

Have You Noticed Something Missing From The DFL Chanting Points Lately?

For most of the past eight seven years since Republicans expunged Democrat control of the WIsconsin state house, the DFL’s favorite line was “lookit how much better MInnesota is doing!”

But I haven’t heard that line in a while.  Most likely, either have you.

Wonder why?

One guess:

After seven years of conservative governance, Wisconsin is growing.  After seven years divided between completely DFL control and the intransigence of a DFL governor vetoing al legislation that doesn’t grow the Big State and with half the state’s economy hobbled by DFL-run metro governments, Minnesota’s economy is contracting.

And that’s why the chanting points have changed…

Pilots

Joe Doakes from Como Park emails:

The Air Force is running out of fighter pilots.

The Air Force believes that the primary cause of this exodus is the recent hiring boom by the airline industry which offers experienced military pilots lucrative civilian jobs.  Pilots cite too many Micky Mouse requirements, not enough flying.

I say this is the result of the Colgan fiasco nearly 10 years ago.  It’s the inevitable consequence of a bureaucratic butt-covering reaction by the NTSB and FAA which rippled through the industry and now into the military.

Colgan Air Flight 3407 crashed short of the runway while on approach for landing at Buffalo, New York in a wintry mix of snow and fog.  The pilots knew they had ice on the wings (which reduces lift,especially at low speeds such as when landing).  The airplane systems worked correctly to warn the pilot but the pilot over-rode the warnings.  50 people died in the crash.

In response, the FAA raised the minimum experience requirement for airline pilots to 1500 hours. The pilot shortage would have manifested itself sooner but the mandatory retirement age was raised from 65 to 70, which kicked the can down the road but did nothing to solve the cause of the shortage: expense.  When I took flying lessons years ago, it cost about $150 per hour to fly with an instructor in a little airplane like a Cessna.  Flying multi-engine and jet airplanes cost much more.  1500 hours at even a modest $200 per hour is $300,000 which nobody can afford.

Nobody but military pilots.  They don’t pay to fly, they get paid to fly.  As Baby Boomer pilots retire, airlines are scrambling to find qualified pilots and the biggest source is military.  In effect, the military is subsidizing the airlines’ pilot training program.

If the Air Force solves its retention problem, look for airlines to begin hiring foreign pilots in droves, stealing from their airlines and their militaries.

Joe Doakes

As long as they increase the seat size, I don’t care if they hire Chinese Navy pilots.

Unintended Consequences, Again And Again

Joe Doakes from Como Park emails:

The starting pay for order takers at Minnesota fast food joints will increase to nearly $10 per hour next year.

In completely unrelated news, fast food joints are replacing order takers with touch screens.  Customers like them better.  And they’re cheaper long-term.

Proof that Liberals were right all along – raising the minimum wage does not loweremployment rates.   For the people who make touch screens.

Joe Doakes

Unfortunately, that’s not the lesson that’ll be broadcast…

Our Lying Eyes And Portfolios

Joe Doakes from Como Park emails:

“Hoarding.”  Americans are “hoarding” cash in their checking accounts, rather than invest in the stock market.

The analysts quoted in the story say the economy is wonderful, the recession is over, incomes are up so people should be spending like crazy but those darn backwards fearful idiots aren’t even putting money into savings accounts that pay .0000025% interest, they’re leaving it in checking.  Morons.

Or, it could be that ordinary Americans hear the phony economics reports but see the economy around them and choose to believe their eyes.  The economy is not wonderful.  The fact they’re claiming it is, provides evidence we cannot believe them.  A bigger nest egg is a wise precaution.

Next up, watch for Liberal politicians to suggest that banks should assess a “surplus savings surcharge” on hoarders’ bank accounts, then deposit the proceeds into the accounts of non-profit companies ostensibly working for low-income clients but actually donating to Democrats.

Joe Doakes

Today’s quips are tomorrow’s Elizabeth Warren bills.

Victimology

Joe Doakes from Como Park emails:

That’s two stories [recently] about doctors who see themselves as victims.

Do they realize they’re one percenters who have nothing to bitch about?  Why aren’t they ashamed to be complaining?

They know they’re on the top rung of intelligence, we all do.  We know they have as much perseverance as any Marine – they made it through college, medical school, internship and residency.  They have enormous student loans but they also get paid a great deal of money (hard to get accurate figures but think about it, would you choose to practice a hugely in-demand trade in Worlds-End Minnesota for less than $200,000 a year?)

We know doctors are at the very top of the heap in every medical clinic; anything they say, goes.  We know they are one of the very few professions that still have any respect from the general public.

And yet these two think they are victims.  Persecuted.  Unloved.  Ground under the iron heel of injustice.  Suffering at the hands of The Man.  Precious snowflakes, unique but ever so delicate.

Makes me want to vomit.  Maybe something I ate doesn’t agree with me?  What do you think, doctor?

Joe Doakes

Can’t Possibly Happen Too Soon

I’ve been working at home for a couple years now, for two different companies.  It’s been great; the “road construction” and “first snowfall of the year” and “thunderstorms” that make Twin Cities commuting such a nightmare are pretty much non-factors for me.

Knock wood.

In the previous couple of jobs, I worked in a combination of “Open Offices” – the “airplane hangar”-style office layout so in vogue these days, which is really just a throwback to the 1940s-stylie institutional office – and, worse, the “war room” concept that’s become the fad among those subscribing to this year’s model for software development, the creaky, plodding, dinosaur called with whimisical irony “Agile”.

The only thing I miss about working in an office is…well, people,  The right people, at the right time, anyway.  And even that’s OK.  I’ve had to get a lot more diligent about organizing a social life, which is also good.

Anyway – I’m very much hoping the trend continues.  And while any trend will get to Minnesota years after the coast, there is hope.

“What’s In Your GDP?”

Joe Doakes from Como Park emails:

Turns out my way of thinking is old-fashioned. I need to think like a millennial. I understand it all now.

The national debt is $20 trillion but interest on the national debt is only $200 billion, which is only 5% of the annual budget.

We don’t care about the total amount of debt. We don’t even care about the annual deficit, because . . .

WE CAN AFFORD THE MONTHLY PAYMENTS.

That’s literally The Plan for running the nation. Just keep running up debt to buy what we want, and make the minimum monthly payment.

But why stop there? Why make the payment at all? Why have student loans – just make college free. Why have FHA loans – just make houses free. Government pays for everything, add it to the debt, make the minimum monthly payments.

Why go half-way? Go all the way!

Joe Doakes

It’s the “Everyone’s pal from college who just kept on running up new credit cards” theory of budgeting.

Someday – five years?  Five generations? – some government will treat “reversion to a barter economy” as “everything is free!”.

Seemed Like A Good Idea At The Time

Joe Doakes from Como Park emails:

Reading a book from 2004 called “Dark Age Ahead” by Jane Jacobs, who has written about culture and cities and societal change.

When it was written, everybody assumed the house price bubble would never burst.

When it was written, everybody assumed that if the house price bubble did burst, the market would quickly correct itself making housing more affordable.

Nobody saw the endless string of stimulus packages and interest rate cuts to bail out foreign banks hoping to keep home prices propped up for a decade.

A whole string of public policy recommendations turned out to be based on bad assumptions.  We see it now, of course.  But at the time . . . .

So: what bad assumptions are we using today as a basis for public policies which, in 15 years, will have people shaking their heads saying “What a bunch of idiots”?

Joe Doakes

Mitchketeers?  Go to it!

Escape

Joe Doakes from Como Park emails:

The experts confidently predicting economic collapse after Brexit might want to recalculate, factoring in these savings:

Could be there is more to Brexit that merely escaping immigrant quotas, could be there also are other policies imposed by Brussels that might be rolled back to liberate the Britons.

Like most populist outbreaks, there’s always more to it…

Downfall!

North Dakota Democrats – who haven’t won a statewide office since 2008, and don’t actually have enough legislators to fill their committee assignments in the NoDak state legislature – have the same city mouse/country mouse divide that Minnesota DFLers do; Democrats from Fargo and Grand Forks, bodies scarcely less dogmatically “progressive” than their cousins in Minneapolis, have come to dominate the imploding party.

How much do they dominate it?  According to Rob Port, they heckled North Dakota’s sole significant elected Democrat, Senator Heidi Heidtkamp at a recent “reorganization” meeting.

Best part?  The urban simps are so ungodly (Ungoddessly?) ouy-of-control that the rural wing of the party is thinking about splitting up along lines that go back nearly 100 years:

“[Rural Democrats] were completely ignored,” [Rob Port’s] source said, adding that he wasn’t sure what the message for the party would be in 2018 but added that it “damn sure won’t be rural friendly.”

“A number of districts wanted an economic message coming out of the party,” my source continued, adding that there was also a desire to communicate to voters that “not all Democrats are against oil.”
“They were completely ignored,” my source said.
Saying that some are calling the party the “Democrats of the Red River Valley,” my source added that “some people are talking seriously about splitting from the party and reforming the NPL.”

That would be the Nonpartisan League part of the Democratic-NPL, the history of which you can brush up on here.

My sources pointed to a Facebook event created for a “New NPL Caucus Meeting” scheduled for July. One of my sources described that as a “organization meeting” for the NPL, though the event page itself seems to describe the effort as a caucus within the Democratic party itself.

The event page does say this new caucus was created on April 8, the same day as the Democratic party’s reorganization in Bismarck.

This, as North Dakota closes in on an decade of Republican hegemony that has left it, even with the lull in wildcatting, in excellent economic shape.

The message to Minnesota voters is clear:  try conservative governance for a generation or so.

Let’s Play Restaurant Dead Pool

Two restaurants in Minneapolis abolish tipping, raise their staff wages to $15 an hour:

Common Roots Cafe (2558 Lyndale Ave. S.) and Butter Bakery Cafe (3700 Nicollet Ave. S.) informed their customers of the change by posting signs in their establishments and on their social media accounts.

In a lengthy explainer, Common Roots Cafe says it will be raising the pay of its staff from at least $11.40 per hour to a minimum of $15 per hour, plus benefits. As a result it won’t be accepting tips, something the cafe said “never felt right for our business.” To cover the extra cost, prices are rising 15 percent.

“We believe all people, regardless of where they work, should make a fair wage and should not have to depend on tips as a major part of their compensation,” the cafe’s Facebook post said, adding: “We think of this [as] a small step we can take toward making the restaurant industry more equitable and to make our workplace stronger and more supportive of all staff.”

The Butter Bakery Cafe posted a shorter message to customers on Tuesday, saying that it has “built fair wages into our menu prices” and is now a “tip free” eatery.

First things first:  their business, their choice.  Better this than the city forcing it on the businesses.

Although that’s coming.

Other restaurants in the cities have experimented with no tipping policies before but they’ve not always been successful. WCCO reports Upton 43 and Victory 44 ended their no-tipping policy last March after a trial run.

Chef and owner of both establishments, Erick Harcey, said it actually went over well with customers and staff members, but caused the restaurants to be priced out with competitors who didn’t have the same policy.

Let’s check back in six months, shall we? 

Public Relations

Joe Doakes from Como Park emails:

The guy dragged off the United Airlines flight now claims he was selected because of his race, which is discrimination.  Is that why he was having hysterics on the plane?

The guy’s response seemed disproportional.  You don’t want to be the guy forced off the plane, I get that.  But seriously, what’s the downside?  You call your work and tell them the story.  Are they really going to fire you over it?   If it’s that big of a deal that you be there to perform the brain surgery, see if they can’t get you another flight instead of a hotel room or rent a car and drive.  Don’t act like a special snowflake, that’s for college kids.

On the other hand, let’s not lose sight of the fact that the airline kicked paying passengers off the flight so they could transport a flight crew who needed to be at the destination location to fly a later flight.  This was not a disruptive passenger, it was not even an overbooking situation, the passengers were booted off the plane entirely for the airline’s convenience.  The airline could have canceled that later flight for lack of a flight crew but it would have cost a boatload of money.  More than $800?  So offer more money.  If they got up to a grand or two, somebody would have taken the bait.  And if not, for that kind of money, they could have hired a private charter to haul the flight crew.

It’s Chicago to Louisville, for crying out loud.  It’s a one-hour flight or a 5 hour drive. For the amount of bad publicity the airline is getting, they could have hired a limo to drive the crew.

And for the CEO to go public claiming the passenger was removed because he was disruptive is pure bull.  He was removed because the airline was too cheap to transport its own flight crew at market prices, i.e., what the paying passengers would accept to give up their seats.

The airline acted brutally and stupidly.  It deserves all the bad publicity it can get.  I’d start with Congress considering legislation that paying passengers cannot be bumped by non-paying passengers (flight crew, family, airline mile redeemers, etc).  Nobody else gets this kind of preferential business model.  Why should airlines?

Joe Doakes

Post-script – or, actually, two post-scripts.

First – whenever the “Free market” does somethingi stupid, or especially something brutal, always look to see if government is the real reason.  The answer, almost invariably, is “yes”.

Government regulations forbid paying premiums of greater than four times the original ticket price – to a maximum of $1350, to passengers who get bumped.

Why?

And the post-9/11 environment of security theater means that episodes that used to be simple customer service disagreements and even misunderstandings are now law enforcement episodes, and even federal crimes.  Thus, the Chicago Airport Police were involved with what should have been a negotiation between passengers and a gate agent – before boarding.   Of course, being Chicago cops, someone just had to “fall”…

Perception

Joe Doakes from Como Park emails:

The purpose of advertising is to influence behavior, we all know that.  And the more people who see the advertisement, the more potential customers whose behavior is available to be influenced.  That’s why advertisers pay millions of dollars for a 30-second commercial during the Super Bowl: they know they’ll be influencing millions of potential customers with their ads.

 Which brings up the question: how long must I stare at an advertisement for it to influence me?  Does it take the full 30-seconds for the magic to work?  Could it happen more quickly?  Perhaps even unconsciously?  Does subliminal advertising work?  Lots of researchers think so.

 If they’re right, I wish they’d explain it to web designers.  I click on links because I want to read the article.  But when the web page takes forever to load, then refuses to let me click through the ad, and auto-plays videos I don’t want to see . . . I click away, having never read the article at all.  My behavior is influenced negatively.

If they’d bring up the article right away, the ads could appear in my peripheral vision while I read.  I’d actually see them, they could do their magic, my behavior would be influenced positively.  If the blog author’s article got mentioned on Instapundit, the resulting Insta-lanche would put millions of potential customers in position available to be influenced by the peripheral ads.

 Joe Doakes

Don’t look at me.  I moved my ads to the sidebar.

Pivot

Joe Doakes from Como Park emails:

The H-1B visa program was started because Americas were such a bunch of dummies, we couldn’t supply the tech industry with enough qualified people not matter how much we offered to pay them.

 But according to this article, it’s now being used to bring in foreigners who can be paid less than qualified Americans.  The problem now isn’t that there aren’t enough qualified Americans, it’s that they cost too much.

 The program was never supposed to be about cost, only supply.  If we have an adequate supply, we don’t need the program.

 Joe Doakes

Oh, it’s about cost.  How else can our high tech industry compete on commodity products like code?

All The Usual Caveats Apply

But Trump’s first month of employment numbers are pretty darn good.

“GREAT AGAIN: +235,000,” Trump posted on his Twitter account in a retweet of a Drudge Report headline on Friday minutes after the Bureau of Labor Statistics released payrolls data for February showing the U.S. added a net 235,000 jobs during the month.

Gary Cohn, the former Goldman Sachs Group Inc. president who’s now director of the National Economic Council, used the report as validation of Trump’s approach to bolstering the economy, which has included bringing in corporate executives to the White House to press them for hiring commitments and publicly scolding companies over plans to move production abroad.

Like I said, all caveats apply; there are a lot of people out there out of work and off the grid, vis a vis the Bureau of Labor Statistics top-line unemployment nmbers.

But the stats show a rise in pay – which has been fairly absent from Obama’s “recovery” so far.  There is a long way to go, and one month of good news isnt’ “Morning in America” just yet.

My personal jury is still out.  But it’s not a bad start.

To The Minneapolis And Saint Paul City Councils

To:  Our Bobbleheaded Overlords
From: Mitch Berg, Irascible Peasant
Re:  “Fight For Fifteen!”

All,

From a friend of this blog, here’s where the $15/hour minimum wage leads, inevitably and inexorably:

It’s at Seattle/Tacoma International Airport – an early adopter of the #FightFor15 – in case you were wondering. Photo courtesy Brian Skon.

Let me just take a moment to say, I don’t think the “#FightFor15” has anything to do with raising worker wages, or taking any sort of care of the little guy.  If it were, you’d be fighting for the only sustainable minimum wage there is – widespread prosperity

No.  This is about virtue-signaling to your base (and I don’t mean minimum wage earners) and showing small business who’s boss.

That is all.

Grrrrr

Joe Doakes from Como Park emails:

Just before handing over power, the Obama Justice Department sued Klein Bank for redlining.  Prosecution exhibits at the link include a map of Klein’s service territory, a crescent around the West side of Minneapolis.  They don’t lend in the inner cities, that’s not their business model.  But those are the highest concentration of people of color!  Why wouldn’t Klein want to make loans there? 

 Gee, I wonder: why would any prudent lender think race or neighborhood would have anything to do with loan profitability?  Have you ever driven through North Minneapolis or Frogtown?  Looked at all the foreclosed properties? Why would any sane lender want to lend money there?

 Social Justice types insist there’s no difference in foreclosure rates between Black and White neighborhoods, that’s just a racist stereotype.  And yet every study by Social Justice types undercuts the narrative supporting the Community Reinvestment Act’s requirement of lending to people who can’t afford to repay.  Here are some from the Twin Cities, who see the damage:

 http://isaiahmn.org/2012/05/east-side-of-st-paul-hit-hardest-by-foreclosure-crisis-impact-to-entire-city/

 http://www.mn2020.org/issues-that-matter/economic-development/map-of-the-week-submarkets-shape-foreclosure-crisis

 http://www.irpumn.org/uls/resources/projects/IRP_mortgage_study_Feb._11th.pdf which contains this especially good paragraph:

 “The enormous costs of foreclosures—to families who lose their homes as well as to cities and towns losing tax resources—have been greatest for communities of color. Both subprime lending rates and foreclosure rates have been highest in neighborhoods with the highest percentages of people of color. The impact of these patterns is especially notable in North Minneapolis, an area where prime lenders are noticeably under-represented and subprime lenders are significantly over-represented.”

 Prime lenders are underrepresented?  Why would that be?  The Community Reinvestment Act demands that banks lend money to persons of color.  But that group tends to have worse credit ratings and (at least in some people’s minds) a culture that fails to emphasize adhering to your contracts.  So lenders don’t consider them prime candidates for a loan; instead, lenders demand a risk premium in the form of higher interest rates to make those loans, which makes it harder for the borrower to pay the loans when there’s an economic hiccup, which results in massive foreclosures in neighborhoods of color.  Not all of them, mind you – the foreclosure rate in the Asian community is a fraction of that in the Black and Hispanic community – which gives support to the notion that cultural differences matter.

 The Social Justice solution, of course, is not to work with persons of color to raise their credit scores or change their culture.  Their solution was to lower the lending criteria for a prime rate loan.  That way, everybody would get the cheap rates so nobody would default.  Except it didn’t work, as a decade of foreclosures and bailouts has amply demonstrated.

 The Community Reinvestment Act is unicorn thinking and bad banking practice.  It caused the real estate crash that cost an entire generation most of its life savings.  The Act should be repealed before it causes another.

 Joe Doakes