Economics Lessons for Liberals: Minimum Wage

A year ago, the minimum wage went up from $5.15 to $5.85 per hour. Last week, it went up to $6.55. Next year, it will go up to $7.25. That’s more than a 40% increase in two years.

My friends on the left tell me that’s a good thing. What could possibly be bad about legislating raises for poor people? They’re absolutely incredulous that anybody could be against it. After all, it doesn’t come out of your pocket, so why should you begrudge it to others?

Economics for Liberals, Lesson #1. Profit is revenue minus expenses. If expenses go up, without a commensurate increase in revenue, profits go down. Profits are necessary to stay in business. In today’s economy, many businesses, particularly small businesses, are just hanging on. Small businesses hire a lot of minimum wage workers, because that’s all they can afford. They also generate less revenue than larger businesses, so they’re more sensitive to higher expenses. Smaller businesses are hit hardest by minimum wage hikes, and may find their profit margin squeezed so thin they can no longer sustain their business.

When we see a rash of local businesses closing their doors, my liberal friends always shake their heads and blame it on the encroachment of big chain stores. They prefer not to acknowledge the role that increased labor costs play in their favorite local businesses being unable to compete any longer. Yet they still defend every increase in minimum wage because they think it “helps poor people.” Meanwhile, as more local businesses go under, more minimum wage employees are left without jobs.

Economics for Liberals, Lesson #2. There are two only two ways to increase profits. Increase revenue or cut expenses. When faced with a significant increase in the cost of labor, a business has two options to recoup the immediate loss of profits. They can either lay people off or raise prices. Both have negative impacts on the economy. One causes unemployment and the other causes inflation.

Nobody likes to lay people off but, when labor costs go up by 40%, many employers are forced to cut their work force by up to 40% to offset the higher cost per employee. When an employee is given a raise based on merit, the expense is offset by the fact that their high productivity contributes to increased revenue. But, when legislation raises wages arbitrarily and unilaterally, there is no increase in revenue to offset the increased expense, so it’s an out and out loss to the business. Furthermore, a significant reduction in work force usually results in reduced revenue, so the small business is squeezed from both ends. First, they cut to the bone; then they raise prices to make up the difference.

In some businesses, cutting back on labor isn’t an option. For example, in agriculture, cutting back on labor would leave produce rotting in the fields. In such cases, the employer has no choice but to raise prices to offset the increased labor costs. Many basic materials, from which other products are made, are produced by low-skilled, low-wage workers. When the prices of those materials go up, due to increased labor costs, it drives up the prices of all the products that depend on them, directly or indirectly, creating a ripple effect of rising prices throughout the economy.

Economics for Liberals, Lesson #3. The real value of a dollar is its purchasing power. When prices go up, your purchasing power, and the value of every dollar you have, goes down. This is known as inflation. Rising labor costs aren’t the only cause of inflation, but even the most basic understanding of economics tells us they cannot help but fuel it. In the short term, the people at the bottom of the pay scale will have more buying power. But, as the ripple effect permeates the economy, everybody ends up having less. In an economy where inflation is already getting out of control, the last thing we need is to fuel it faster.

Raising the minimum wage results in higher prices, fewer jobs, and more businesses closing their doors. — But, if that’s true, why would our elected representatives continue to do it? They do it because most of their constituents have no understanding of economics, and more money always sounds good, so promising more money gets them more votes. And getting votes is more important than the economy.

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Giving “Peace” a Chance

I was told yesterday that we should “give peace a chance,” and that the sanctions against Iran are working. We just need to give it time. I asked the person who told me that what makes them so certain the sanctions are working, even as Iran continues to amass and enrich uranium and conduct missile tests? I asked what are the criteria for success? I did not get an answer. Ahmadinejad is openly laughing at the U.N. In a televised interview four months ago, he said “If they want to continue with that path of sanctions, we will not be harmed. They can issue resolutions for 100 years.”

While we are “giving peace a chance,” Ahmadinejad is building a nuclear arsenal.

Another person told me today that, if we were to take military action against Iran, the world would condemn us because they already think we’re a bully. Apparently, some people believe we need to wait for Iran to make the first strike, so the world will “approve” when we retaliate. How many American and/or Israeli lives are we willing to sacrifice to world opinion?

It’s frustrating to know what your enemy is up to (because he has brazenly told you), but be unable to do anything about it because you don’t want to look bad to somebody else, while your enemy gloats because he knows your hands are tied by public opinion.

Within the past three months, Iran has been installing 6000 new super high efficiency centrifuges for enriching uranium, that work five times faster than the old centrifuges. Some people are willing to believe Ahmadinejad when he says he’s going to use all that enriched uranium for nuclear energy just to produce electricity, but are unwilling to believe him when he declares the time is very near when America (the Great Satan) will be destroyed and Israel will be wiped off the map.

I’m not suggesting we should jump into a war with Iran tomorrow. But I have a great deal of concern over the confluence of:

  • Their recent dramatic increase in uranium enrichment capabilities.
  • Their mounting increase in apocalyptic rhetoric against both the U.S. and Israel.
  • Their recent saber rattling exercises, indicating that they feel invincible.

All of this concerns me a great deal. It also concerns me that so many people seem determined to ignore these facts, or refuse to consider their potential underlying significance. Any one, by itself, might be dismissible but, taken together, there appears to be a certain momentum building.

I acknowledge that we’re too overextended militarily right now to be able to effectively engage in direct military action against Iran. I see that as a huge problem, as Iran shores up it’s military might in obvious preparation for a conflict we are not prepared to undertake. I also grasp the urgency to take some kind of action to thwart their build-up of nuclear capability before it gets to the point that we cannot, without exacting a retaliatory strike. (Or first strike, as some would have it.) Once they have a nuclear arsenal in place, it’s too late.

How ironic that “giving peace a chance” might lead us down the path to a nuclear war that could have been avoided…

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Ready or Not, A Change is Going to Come

I’m starting to feel more pessimistic about our future than I am wont to do. It seems we are stuck. Like a deer in the headlights, we cannot see which way to move. Iran has made clear their intentions and their capabilities, and they’re sitting there smirking at us while we debate all the ways and reasons we can’t retaliate, and enumerate the innumerable paths to failure. How I wish we had some real leadership in this country. If ever we needed a leader, it’s now.

One question worth asking ourselves when we go into the voting booth in November is what will each candidate’s reaction be in the event of a nuclear war in the Middle East? How long will Obama try to negotiate with a madman while he builds up his military might and prepares for a first strike?

Hang on tight, my friends. We’re headed for uncharted territory.

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Without Just Compensation

One of the purposes of the Fifth Amendment is to protect private property from usurpation by government, declaring “nor shall private property be taken for public use, without just compensation.” Under the law of eminent domain, the state can compel a property owner to sell his property to the government, but is required to justly compensate him for the loss. However, there are other ways in which the state can usurp private property rights without actually taking title to the property. When the state imposes regulations that deprive a citizen of the rights associated with private ownership of some or all of his property, it’s known as a “regulatory taking.”

In 1992, the U.S. Supreme Court found (Lucas v. South Carolina Coastal Council) that the state is only required to provide just compensation under the Fifth Amendment for regulatory takings when the regulations deprive the owner of “all economically beneficial uses of the property.” That means the state can legally deprive a property owner of over 90% of the value of his property without owing any compensation. The “categorical rule,” as this has come to be known, is a boon for any state desiring to usurp control of private land without the burden of having to compensate the lawful owners.

Rarely can it be demonstrably proven that a property has been rendered devoid of all economic value. Nevertheless, in those rare cases where that actually can be proven, the U.S. Supreme Court has granted the states yet another loophole to exempt them from having to compensate property owners for their loss. The Court ruled that, even if the regulations imposed deprive the property owner of all economically beneficial use of the property, the state is not required to provide compensation if the regulatory restrictions can be justified by “background principles of nuisance or property law.”

Under common law, nuisance is understood to be an activity or condition that unreasonably interferes with the right of other property owners to the “quiet enjoyment” of their property, or interferes with public health or safety. However, the reference to “background principles of property law” is much more ambiguous, as these background principles vary from state to state. Each state defines its own property law, and the “background principles” are often implicit assumptions that have never been explicitly spelled out until they’re claimed by the state, challenged, and settled in court. Then they become established law.

One of these background principles is the “public trust,” which we discussed at length in Private Property vs. Public Trust. Between the categorical rule and the blanket exemption for background principles of state property law, the Supreme Court has begotten a brave new form of eminent domain that enables the states to completely bypass the just compensation protection set forth by our founding fathers in the Fifth Amendment. Some states, like Oregon, are taking full advantage of that, quietly and methodically working on a number of different fronts to lay a strategic foundation of “background principles” that expand their legal bases for usurping control of private land.

What sort of long-term agenda might a state have for establishing a legal framework for unprecedented regulatory takings without compensation? The answer may lie in the influence of the rich and powerful environmental lobbies, whose agenda is to prevent as much development, timber harvesting, mining, or any exploitation of natural resources as they possibly can. Some people think that’s a good thing. But, apparently, not enough to achieve the goals of the environmental lobby without establishing government control of any resource in which they have an environmental interest. Some people are OK with that. After all, the government must know what’s best for the people, and will always act in their best interest. Therefore, it stands to reason that the government should own all natural resources (including land, air, and water) and/or control how they’re used.

The concept of government versus private control is at the core of the ideological conflict between Marxism and capitalism. Private property is a fundamentally capitalistic concept, and that is what is under attack. So, the next time you hear about some new land grab by the state, and you think it’s somebody else’s issue because it doesn’t directly affect you, consider that there’s more at stake in this game than just land.

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Private Property vs. Public Trust

There are two types of property ownership recognized by law, jus privatum and jus publicum. Everybody’s familiar with jus privatum, also known as fee simple ownership. It means that you have title to a parcel of property, which confers upon you certain rights with respect to that property. Historically, private property rights have been defined as:

  • The right to control the use of your property.
  • The right to the benefits that accrue from your property.
  • The right to sell or transfer your property.
  • The right to exclude others from access to your property.

On the other hand, few people are familiar with jus publicum, also known as the public trust. Jus publicum ownership is always vested in the state, never in a private party. Unlike jus privatum, jus publicum is not transferrable. Furthermore, in any case where jus publicum can be established, it overrides jus privatum. Therein lies the rub. That enables the state to use jus publicum to abrogate your private property rights, without your consent and without compensation, in any situation where jus publicum can be established.

The idea of public trust goes back to English Common Law.

“Both the title and the dominion of the sea, and of rivers and arms of the sea, where the tide ebbs and flows, and of all the lands below high water mark, within the jurisdiction of the crown of England, are in the King. Such waters and the lands which they cover either at all times or at least when the tide is in, are incapable of ordinary and private occupation, cultivation, and improvement and their natural and primary uses are public in their nature, for highways of navigation and commerce, domestic and foreign, and for the purpose of fishing by all the King’s subjects. Therefore the title, jus privatum, in such lands, as of waste and unoccupied lands, belongs to the king, as the sovereign; and the dominion thereof, jus publicum, is vested in him, as the representative of the nation and for the public benefit.”
U.S. Supreme Court, Shively v. Bowlby (1894)

After the American Revolution, the thirteen former colonies that made up the newly formed Union assumed the title and rights of the King to all navigable rivers within their respective territories. The jus publicum was held to be non-transferrable, acting as a permanent public easement on the jus privatum title for purposes of navigation, commerce, and fishing, as originally designated under English Common Law. At a time when rivers were the most practical means of transporting people and goods over long distances, the free use of navigable waterways was considered essential for the development of local and interstate economies.

As other states were admitted to the Union, they were guaranteed equal footing with the original thirteen, and so acquired the same title and rights to the navigable rivers within their jurisdiction.

Said rivers and waterways and all navigable waters of the said state shall be common highways and forever free as well to the inhabitants of said state as to all citizens of the United States without tax, duty, import or toll thereafter.
Act for Admission of Oregon into the United States (1859)

In accordance with the original intent of the law, jus publicum was traditionally defined as the specific public rights associated with using rivers as “highways of navigation and commerce” and for purposes of fishing. While a highway is dedicated to public use, no sane person would claim the right to sit down in the middle of a highway and have a picnic. That is not one of the designated purposes of a highway. Likewise, it never occurred to anyone to claim that recreation would be an applicable purpose for which to invoke jus publicum. — Up until 25 years ago, that is, at which time the state of California came up with the notion that the definition of jus publicum could be extended to include whatever purposes the state might find convenient.

The objective of the public trust has evolved in tandem with the changing public perception of the values and uses of waterways. … [T]he traditional triad of uses – navigation, commerce and fishing – did not limit the public interest in the trust res. … “In administering the trust the state is not burdened with an outmoded classification favoring one mode of utilization over another.”
California Supreme Court, National Audubon Society v. Superior Court of Alpine County (1983)

In that case, the California Supreme Court extended jus publicum to include non-navigable tributaries of Mono Lake. The court ruled that the state could prevent the Department of Water and Power for the City of Los Angeles from using its legally owned water rights because the usage interfered with the supply of water to Mono Lake. The water rights were deemed to be a public trust for “environmental and human considerations” having nothing to do with the traditional jus publicum rights relating to navigation, commerce, or fishing. The court rejected a regulatory takings claim because the land was held to be exempt from fee simple title on the grounds that it was a public trust and, therefore, no compensation was due to the plaintiff for the loss of their water rights.

That ruling opened the door for other states to expand the scope of jus publicum beyond its original intent, in whatever ways captured their imagination.

The nature of the ownership includes two components: fee simple title (the jus privatum) and dominion as the public’s trustee over the natural resource for public trust uses such as navigation, commerce, fisheries and recreation (the jus publicum).
Oregon Department of State Lands, Rogue River Navigability Report (2008 )

Oregon, quietly and without fanfare, slipped “and recreation” into the list of rights held in trust for the public under jus publicum. Nobody blinked so, by precedent, the “right” to recreation is now part of the legal definition of the public trust in the state of Oregon. What difference does that make? If you own riverfront property, the traditional definition of jus publicum guaranteed passage for boats on the river without your explicit consent. The new and improved definition declares that anybody who wants to may have picnics and parties in your backyard (at least the part of it that extends below the high water mark). In the course of carefree recreation, people often make noise, leave litter, and sometimes do damage to property. But there’s nothing you can do about that, because the state of Oregon declared they have as much right to use your property for recreation as you do. You can ask them to pick up their litter, but you can’t enforce it. And, if they damage your property, you can try to sue them, if you can find out who they are… But you have no legal right to keep them out, or to restrict what they may do while they’re enjoying your property.

Oregon was not the first state to include recreation in the definition of jus publicum. In 1999 (National Association of Home Builders v. New Jersey Dept. of Environmental Protection), riverfront property owners were compelled to allow a public pathway along the river, through their property, with no compensation for takings, because the right to access the river for recreational purposes was ruled a public trust. Because the path is on their property, the “owners” have the responsibility of maintaining it (just like a public sidewalk) and, presumably, they also carry the liability if anyone should get hurt while traversing it.

In 2002 (Esplanade Properties, LLC v. City of Seattle), the Ninth Circuit Court used the state of Washington’s expanded definition of jus publicum to prohibit residential development of privately owned shoreline properties. Because the recreational use of the shoreline is considered a public trust, no compensation was awarded to the fee simple “owners” of the property.

According to The Idea of Property: Custom and Public Trust, in 2001 (R. W. Docks & Slips v. Wisconsin), the Wisconsin Supreme Court “expanded the public trust doctrine to include recreation and preservation of scenic beauty.” Subsequently, Florida and other states “expansively interpreted” the public trust doctrine to include both recreation and scenic beauty, as well. When the state can rule that the public’s “right” to scenic beauty supercedes the private property rights of individuals, one has to wonder if there are any limits to the ever-expanding powers of state government to abrogate our property rights for whatever arbitrary purpose they may declare.

When the state declares your property, or some part of your property, to be a public trust, it can legally deprive you of the traditional rights associated with private property ownership. In the cases cited above, property owners were deprived of the right to control the use of their property, the right to economic benefits accruing from their property, and the right to exclude others from access to their property. Yet, as long as the justification is based on jus publicum (or expanded definitions thereof), the state is not required to pay any compensation for takings under the laws of eminent domain. Because jus publicum is non-transferrable, the state will claim the property rights in question never did actually belong to you (though you will continue to owe property taxes on the property).

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Liberty. Freedom. Independence.

I always get Independence Day and Thanksgiving confused. Not because I can’t tell a turkey from a firecracker, but because every Independence Day I am overwhelmed with gratitude.

I am proud to be an American. I love this country. I’m grateful for the fundamental freedoms, not granted by our government, but recognized by our government as inalienable, and protected by our Constitution. I’m grateful to our founding fathers, who came up with the idea of a nation dedicated to the preservation of individual rights and liberties, and persevered to establish that nation. And I am immensely grateful to all the men and women in our armed forces who have sacrificed their lives upholding those principles, and to those who continue to put their lives on the line day after day to defend our freedoms and the way of life we take for granted.

This is the greatest country on earth. Not because of the land, though it is a beautiful country and abundant with natural resources, not because of the people, because there are good and bad people everywhere, but because of the principles set forth by our founding fathers that define this nation. Liberty. Freedom. Independence. Those are three of my favorite words.

I am proud to be an American. I love this country. And I give thanks for the good fortune of having been born here and for the privilege of being an American citizen.

God bless America! God bless America! God bless America!

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Mommeeeee — It’s Not Fair!

“He got more than me. Mommy, make him give me some of his.” Does that sound like childish whining? Whining, certainly. But, as childish as it may sound, it’s the basis of the most devastatingly destructive politico-economic folly of the modern age. When you take that same concept and translate it into adult language, it comes out as the redistribution of wealth. Wars have been fought, hundreds of thousands of people killed, lives destroyed, property confiscated, free speech banned, totalitarian regimes established, all in the noble name of “fairness.”

Some people are born rich; others are born poor. That’s not fair! So let’s even it out. Of course, not everybody who’s rich was born rich. Many people become rich through their own hard work, intelligence, talent, skill, and enterprise. But that’s not fair, either. Intelligence and natural talent are a result of good genes. Hard work and enterprise are a result of good upbringing. That gives people with good genes and a good upbringing an unfair advantage. So the only way to level the playing field is for everybody to contribute according to their abilities, and everybody to receive according to their needs. What could possibly be more fair than that?

And, if those who have more to contribute don’t want to give up what’s theirs, that’s not fair! So the government should step in and take it by force to redistribute among those who just don’t have the talent, skill, or motivation to produce more for themselves. After all, isn’t the role of government to ensure fairness?

But the problem is bigger than any one government can solve. People all over the world are born into vastly different circumstances, with different opportunities. Some people are born in third world countries with corrupt dictatorships and little technological advancement. Other people are born in America, where generations of individual and economic freedom have created a culture where even the poorest of the poor, who live on government subsidies, are rich by the standards of most third world countries. How do we make that fair?

We would have to redistribute the wealth from America, and all the other first world countries, to all the third world countries. If all the wealth in the world were redistributed evenly, we’d all be living at barely above subsistence level, and nobody would be able to afford to invest in (or even to buy) technology, science, or medicine. When the whole word’s standard of living was reduced to the lowest common denominator, and all progress and advancement was beyond everybody’s reach, perhaps it would finally be fair.

However, once that was accomplished, there would still be people with ingenious minds and obsessive-compulsive work ethics, and some who are unfairly gifted with various sorts of talents. Those people would still be inherently driven to produce things that provide unique value to others. And those who value what they produce would inevitably find ways to pay them for it. Then the people with superior minds or talents or skills would start to amass more than others. And that just wouldn’t be fair. So what do you do with the ones who are too intelligent or too talented or too industrious to support the paradigm of universal equality in all things? You would just have to get rid of them (which is exactly what they did in the Russian and Chinese revolutions). The problem is that there will always be more of those people. They will keep cropping up, because life is not fair.

Observing the natural world, is survival of the fittest fair? No! And there’s a reason for that. Nature is intensely competitive. And human nature, being part of nature, follows the laws of nature. That’s why the most successful economies are those based on free enterprise. Because capitalism is based on human nature. The redistribution of wealth is an attempt to ensure the survival of the least fit at the expense of the fittest. It’s a recipe for reverse evolution. It has never succeeded. It will always fail. Because you can’t reverse or repeal a law of nature.

What those who claim to want “fairness” are really seeking is control. They don’t like the seeming randomness of the free market. They’re disturbed by the negative attitudes sometimes expressed in free speech. Freedom, in general, bothers them.

So, it doesn’t really come as a great surprise that House Speaker Nancy Pelosi, among other prominent Democrats, seems to think fairness requires the redistribution of public opinion. Conservative talk show hosts apparently have more market share on the “public airwaves” than liberal talk show hosts. That’s not fair! Never mind that the reason they have more market share is because that’s what the market wants. That’s what the listeners have chosen to listen to, of their own free will. In the time-honored tradition of the free market, radio stations book the programs the listeners want to hear.

So, if the liberal lawmakers want the public to listen to liberal radio, but the public isn’t interested, what are the liberal lawmakers to do? Make a law, of course! In the interest of “fairness,” they can legislate that any station that airs conservative views must give equal time to liberals. And if the stations’ profits go down because they can’t sell as much advertising on programs nobody wants to hear, then that’s just tough, isn’t it? After all, we have to be “fair,” don’t we?

The liberals who support the “Fairness Doctrine” will be quick to remind you that the airways are, after all, “public.” But what does that actually mean? Perhaps, if the airwaves are public, it isn’t fair for private enterprises to profit from them at all. Does that mean all radio stations ought to be nationalized? How about television? Perhaps all forms of media should be nationalized, — in the interest of fairness, of course.

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