Friday, June 29, 2018

Harley-Davidson Motor Cycles, Trade Wars and our Obsolete Constitution

Harley-Davidson Motor Cycles, Trade Wars and our Obsolete Constitution

Harley-Davidson Motor Cycles recently announced it will be moving some production to Europe to avoid new tariffs made in retaliation to unilateral increases in United States tariffs. Harley officials reported a $2,200 price penalty from the Trump tariff war. In spite of the abuse and ridicule from Trump, Harley-Davidson Motor Cycles did what any business has to do week in and week out; they adjusted to a change in economic circumstance. In this case Trump made a significant change in their market condition imposing tariffs with a guaranteed retaliation.

For at least 50 years the United States sent representatives to repeated meetings of the General Agreement on Tariffs and Trade(GATT) with instructions to negotiate lower tariffs and trade barriers. The world economy and companies like Harley-Davidson have adjusted completely to the lower tariffs. The Trump tariffs make American companies especially vulnerable because retaliation only affects American products made in America; every other company from every other country now has a price advantage over American companies like Harley-Davidson.

More companies will have to do what Harley-Davidson does, which will accelerate job loss in the United States. Trump remains immune to economic forecasts and market conditions while his conduct continues to be so erratic no one can predict how bad things might get.


Congress granted Presidents the dictatorial power to impose tariffs for national security reasons, but has allowed Trump to define national security as anything he wants. Congress can take the power back anytime it wants. As Trump threats and bluster translate into retaliation by other countries a weak and plaintive protest of corporate America has appeared in the media, but nothing happens about the tariffs. Corporate America appears powerless to challenge Trump, a Republican no less.

Congress can be obnoxious and threatening and make life a misery for administrators; it can stall and obstruct, but it can’t make a simple decision to stop an idiotic policy that guarantees economic loss as Harley-Davidson officials so clearly understand.

The current Trump tariff abuses highlight the workings of an obsolete constitution. The founding fathers designed a Congress with machinery designed for obstruction; very small numbers can obstruct majorities in a bicameral Congress filled with rules to block decisions. No balance of power remains among the three branches of government we all learned about in high school. The initiative and power have all passed to the President and his executive branch machinery. Anyone who doubts that should ask why corporate America with all its money bags looks at economic loss as a spectator in a brewing trade war?

Thursday, June 28, 2018

DC Initiative 77 and the Tip wars

On June 19, 2018 District of Columbia voters had a chance to vote on Initiative 77 to do away with the sub minimum wage and the tip credit for tipped employees like waiters, waitresses, and bartenders. They did so by a 55 percent to 44 percent margin. [D.C. voters approve initiative to raise minimum wage for tipped workers to $15, Washington Post, June 20, 2018]

The minimum wage in Washington, DC is $12.50 an hour in 2018, but as with the Federal minimum wage the District of Columbia has a sub minimum wage for businesses with employees who customarily receive tips. The sub minimum wage in DC is $3.33 an hour. Under rules governing the sub minimum wage those restaurants that pay a sub minimum wage must verify the additional amount from tips are enough to bring an employee up to at least the minimum wage, a practice known as taking the tip credit. If tips are not enough to equal the minimum wage then the employer is expected to keep track of the short fall and make up the difference. Notice that means all tips paid above $3.33 an hour up to $9.17 an hour, or $12.50 minus $3.33, are in lieu of normal wage obligations and become a subsidy to the restaurant.

Initiative 77 eliminates the sub minimum wage gradually by raising the current $3.33 cash wage plus tips to be a $15.00 an hour cash wage by 2025. After 2025 any tips will be the property of servers in addition to their cash wage; the business subsidy will gradually disappear.

The subsidy from the sub minimum wage dates from 1942 and a decision by the U.S. Supreme Court to ratify a private scheme to use tips as wages. The wage data reported by the Bureau of Labor Statistics in its Occupational Employment Survey suggest the restaurant subsidy scheme in the sub minimum wage does not ensure employees are paid the minimum wage. In DC the median wage reported for waiters and waitresses in 2017 was only $11.86, not $12.50, which means something over half of waiters and waitresses earn less than the minimum wage including tips.

California, Oregon and Washington are three states that abandoned the sub minimum wage for tipped employees. California and Oregon have a minimum wage of $10.5 an hour and Washington $11.50 an hour for all industries. The Bureau of Labor Statistics reports all 31 of California metropolitan areas and 5 sub state non-metropolitan regions have a median wage for waiters and waitresses above their minimum wage; and for Oregon’s 8 metropolitan areas and 4 sub state non-metropolitan regions; and for Washington’s 13 metropolitan areas and 4 sub state non-metropolitan regions.

The effect in these three states suggests it pays for the working class waiter and waitress to get rid of the sub minimum wage subsidy for restaurants. If, or when, restaurants confront much higher food prices they have to experiment with a combination of cost cutting and price increases. They might serve smaller portions, or change the menu to save costs while experimenting with higher prices. I’m hard pressed to understand why they expect to avoid doing that when wage costs rise. They have had this favor since 1942 and judging from their publicity campaign against changing it they think it as their inalienable right.

The Washington Post article mentioned above goes on to discuss the grimy politics of DC voter initiatives because apparently the city council and always the U.S. Congress can overrule a voter initiative. To justify throwing out a District wide election opponents of the working class debase democracy by complaining only 18 percent voted in the election as an excuse to ignore voters. They act as though they know the other 82 percent would have defeated the measure, and we all should respect the lethargy of no shows. If it was Trump talking I could understand it, but the DC city Council?

Strike! Strike?

Thursday, June 14, 2018

GOP Repeals Michigan Wage Law

In Michigan the Republican controlled legislature repealed the prevailing wage law that applied to public construction projects. Supporters cited by the Detroit Free Press [Det. FP, June 7, 2018] claim repeal will save taxpayers money as projects paying prevailing wages “cost 10-15 percent more than if it was built by the private sector.” State representative Gary Glenn called prevailing wages a “discriminatory relic of the past.” He claims it will save “hundreds of millions of dollars.”

No one quoted in the Free Press mentions a dollar wage when speaking of a prevailing wage, but if repeal will save money then wages must fall and for wages to fall there must be a big surplus of labor. Since business keeps whining about labor shortages, they contradict themselves.

The U.S. Bureau of Labor Statistics reports the median wage for 50 construction and extraction occupations, which in Michigan is $22.67 an hour, or $47,167 a year. That puts Michigan 19th among the fifty states and the District of Columbia. A 10 percent cut would be $4,717 and leave $42,438 a year.

If, as seems likely, business contractors bid on public projects then there can be no guarantee the contractors will bid lower in response to repeal of a prevailing wage law. Unless there is vigorous competition among many contractors they maybe able to bid as usual and pocket the wage savings themselves. It appears quite likely taxpayers will get nothing from this repeal.

The Free Press reported that all Democrats in the House voted against the measure and therefore Republicans take the entire responsibility for repeal, which makes the whole episode another in string of examples of politics in a divided society. Saving taxpayers was just the excuse. Democrats will have to figure out why so many in the working class vote for Republican pickpockets who lower their standard of living.

Monday, June 11, 2018

The Birth of a New American Aristocracy - Review

Matthew Stewart, “The Birth of a New American Aristocracy: The gilded future of the top 10 percent – and the end of opportunity for everyone else” Atlantic Monthly, June 2018, 48-63

In his ten part cover story for the June 2018 Atlantic author Matthew Stewart begins dividing United States wealth into three classes: the top .1 percent, the next 9.9 percent and the 90 percent at the bottom. He defines the 9.9 percent as the new aristocracy in order to argue their self-deception makes them a cause of our growing inequality, destabilizing politics and eroding democracy.

Readers get financial information to help define the groups. The .1 percent have 160,000 households and 22 percent of American wealth in 2012, up from 10 percent in 1963. Assets of $1.2 million in 2016 puts a household in the 9.9 percent and the assets of the 9.9 percent exceed the combined assets of the top .1 percent and the lower 90 percent.

In the mass media mobility justifies inequality, but Stewart reports several research efforts that show the average income of children correlates significantly with the average income of parents. In other words, the wealth of the current generation depends very much on having wealthy parents. Comparisons with other countries show the correlation of wealth between generations gets higher in countries with higher inequality. Since the United States has the highest inequality, a parent’s wealth does a better job predicting their children’s wealth than other developed countries. Mobility today requires winning the mega-millions jackpot.

That finishes part 2, part 3 through part 6 describes some ways the 9.9 percent game the system. Those in the 9.9 percent tend to be people of “good family, good health, good schools, good neighborhoods and good jobs.” They meet and marry in process of “assortative mating.”

Part 4 outlines the game in education. Matthews reports 2.2 percent of America’s high school students graduate from private high schools and make up 26 percent of Harvard students. Education for the “sake of society” has given way to a private benefit measured by higher salary, which helps the financial benefit of the college premium correlate with a decrease in social mobility. Part 5 takes up tax subsides that favor the 9.9 percent and the .1 percent who then fill the media whining about food stamps and welfare cheats. In part 6 readers learn the returns to real estate in the “right places” may account for essentially all of the increase in the concentration of wealth over the last 50 years and coincidentally much of the isolation of the 9.9 percent from the 90 percent.

These first six parts establish a platform to discuss the politics of resentment. Part 7 confronts and scoffs at the 9.9 percent’s delusions of a meritocracy, which Stewart argues has evolved into a class of aristocracy over only a few decades. In part 8 – the Politics of Resentment – inequality provokes a chain of consequences: resentment, political division, instability. Here Stewart lets Trump make his case by citing examples of Trump stoking the fires of resentment for political gain. Stewart concedes the .1 percent delight in their manipulations, but blames the 9.9 percent for taking “our cut of the spoils” while looking “on with smug disdain” and taking it all for granted. Stewart reminds readers that resentment breeds an increase in inequality as every change made by Trump so well demonstrates: the new tax law to wit. At the end of part 8 Stewart warns the 9.9 percent they will soon find themselves the target of economic attack.

Part 9 provides a sobering reminder: reform seldom relieves inequality. History suggests it takes depression, violence, or warfare to bring change and Stewart gives the American Civil War as one example. Remember slavery is a system of cheap labor that guarantees inequality. Lincoln in his famous house divided speech addressed that issue before the civil war: “A house divided against itself cannot stand. I believe this government cannot endure permanently half slave and half free. . . . It will become all one thing, or all the other.” Free labor in competition with slave labor generated poverty, inequality and a violent political instability. Our high school textbooks emphasize the stance of the abolitionists and their ethical and moral objections to slavery. They were a factor, but the civil war started much more for economic reasons: inequality and the depressing effects of a dual wage system.

Part 10 offers a tiny bit of optimism by suggesting the 9.9 percent could get hold of themselves and offer the country some leadership. Leaders should support the larger social order and help direct resources to causes in the common good like health care. Many people of my acquaintance have wondered why so many of the 90 percent keep voting for people like Trump and the Republican pickpockets. I thought of that when Stewart mentioned the poor, southern white boys in butternut and gray that died by the tens of thousands to save the wealth and life of the southern planter class that so crudely exploited them. The United States has had one civil war and I get the feeling Stewart believes the Trump base could bring another. We can hope not, but if it comes to pass the Trump base will join the .1 percent on the one side, and the 9.9 percent will be the other; the resentful always join the authoritarians. Mr. Stewart has warned you.