Roosevelt, Wage and Price Controls, Fringe Benefits, Health Insurance, Pensions, Unions, Bankruptcy and Bethlehem Steel

Posted by PITHOCRATES - September 3rd, 2013

History 101

(Originally published November 20th, 2012)

The Roosevelt Administration fought Inflation by Passing a Law to Cap Employee Wages

Most times when those in government try to fix things they end up making things worse.  Giving us the unintended consequences of their best intentions.  And the government had some good intentions during World War II.  They were printing money to pay for a surge in government spending to pay for war production.  As well as a host of New Deal programs.  Which sparked off some inflation.  Inflation is bad.  Enter their best intentions.

One of the biggest drivers of inflation is wages.  Higher wages increase a company’s costs.  Which they must recover in their selling prices.  So higher wages lead to higher prices.  Higher prices increase the cost of living.  Making it more difficult for workers to get by without a pay raise.  Which puts pressure on employers to raise wages.  If they do they pass on these higher costs to their customers via higher prices.  It’s a vicious cycle.  And one all governments want to avoid.  Because higher costs reduce economic activity.  And that’s how governments get their money.  Taxing economic activity.

Enter wage and price controls.  The Roosevelt administration thought the way to solve the problem of inflation was simply passing a law to cap employee wages.  To halt the vicious cycle of escalating prices and wages.  Something employers didn’t like.  For that’s how they got the best people to work for them.  By offering them higher wages.  With that no longer an option what did these employers do to get the best people to work for them?  They started offering fringe benefits.  Which became a killer of business.

As People lived longer in Retirement Retiree Pension and Health Care Expenses Soared

Employers began offering health insurance and pensions as fringe benefits for the first time.  To get around the wage and price controls of the Roosevelt administration.  Which they had to pass on to their customers via higher prices.  So the wage and price controls failed to do what they were supposed to do.  Keep a company’s costs down.  Worse, these benefits made promises many of these businesses just couldn’t keep.

Roosevelt also empowered unions.   Who would negotiate ever more generous contracts.  By demanding generous pay and benefits for current workers.  And pensions and health care for retired workers.  But it didn’t end there.  The unions also expanded their membership as much as possible.  So in those contracts they also got very costly workplace rules.  If a lamp burnt out at a workstation the worker had to call an electrician to replace the lamp.  They could not screw in a new lamp themselves.  The unions defined every work activity in a workplace and created a job classification for it.  And only a worker in that job classification could do that work.  Which swelled the labor rolls at unionized plants.  Who all were receiving generous pay and benefits.  As were a growing number of retired workers.  Greatly increasing labor costs.

For awhile businesses could absorb these costs.  Business was growing.  As was the population.  There were more younger workers entering the factories than there were older workers retiring from them.  But things started changing in the Sixties.  The population growth rate flattened out thanks to birth control and abortion.  So as the population grew slower the domestic demand for manufactured goods fell.  While in the Seventies foreign competition increased.  So you had falling demand and a rising supply.  Making it harder to pass on those high labor costs anymore.  Which proved to be a great problem as their market share fell.  For as they laid off employees fewer and fewer workers were paying the pensions and health care costs for an ever growing number of retirees.  Pensions were chronically underfunded.  Worse, people began to live longer in retirement thanks to advances in medicine.  Increasing retiree pension and health care expenses for these businesses.  Bleeding some of them dry.

Bethlehem Steel filed Bankruptcy when they had 11,500 Active Workers and 120,000 Retirees and Dependents

Bethlehem Steel helped build America.  And win World War II.  It made the steel for the Golden Gate Bridge.  And the bridges between New York and New Jersey.  Many of the skyscrapers you see on Manhattan are made with Bethlehem steel.  Little Steel.  Second only to Big Steel.  U.S. Steel.  Big Steel and Little Steel dominated the US steel industry.  Until, that is, foreign competition entered their market.  And the steel minimills arrived on the scene.  Neither of which had unionized workforces.  Or those legacy costs (retiree pension and health care expenses).  Which spelled the doom of the sprawling Bethlehem Steel.  From 1954 to 2003 hot-rolled steel sheet prices rose 220%.  While wages soared over 900%.  And it got worse.

Employment peaked in 1957 at 167,000 workers.  By the mid Eighties that fell to 35,000.  With some 70,000 retirees and dependents.  That is, Bethlehem’s retiree costs were about twice their active labor costs.  As business continued to fall employment fell to 11,500.  While their retirees and dependents rose to 120,000.  Just over 10 retirees for each active worker.  Unfunded pension obligations soared to $4.3 billion.  Just impossible numbers to recover from.  Which is why Bethlehem Steel is no longer with us today.  The company was dissolved in 2001.  With International Steel Group (ISG) buying some of their remaining assets.  Then, in 2005, a foreign steel company, Mittal Steel, merged with ISG.  Leaving no remnants of Bethlehem Steel in American hands.

ISG got the steelworkers union to reduce the number of job classifications in the Bethlehem plants they took over from 32 to 5.  Greatly shrinking the labor rolls.  And increasing efficiency.  Helping these remaining assets to move forward.  The pension fund was taken over.  With retirees losing only about $700 million, giving retirees a pension of up to $44,386.  But retirees lost their health care.  Some $3.1 billion in spending obligations that the company couldn’t pay.  And didn’t.  A sad ending for an American great.  A failure the Roosevelt administration was responsible for.  As their good intentions resulted in unintended consequences.  Setting businesses up to fail with costly fringe benefits.  Adding yet another demand to the union’s list of demands.  Spending obligations these businesses couldn’t pay once domestic demand fell while steel supplies rose.  Leading to the inevitable.  Bankruptcy of large unionized companies.

www.PITHOCRATES.com

Share

Tags: , , , , , , , , , , , , , , , , , , ,

Roosevelt, Wage and Price Controls, Fringe Benefits, Health Insurance, Pensions, Unions, Bankruptcy and Bethlehem Steel

Posted by PITHOCRATES - November 20th, 2012

History 101

The Roosevelt Administration fought Inflation by Passing a Law to Cap Employee Wages

Most times when those in government try to fix things they end up making things worse.  Giving us the unintended consequences of their best intentions.  And the government had some good intentions during World War II.  They were printing money to pay for a surge in government spending to pay for war production.  As well as a host of New Deal programs.  Which sparked off some inflation.  Inflation is bad.  Enter their best intentions.

One of the biggest drivers of inflation is wages.  Higher wages increase a company’s costs.  Which they must recover in their selling prices.  So higher wages lead to higher prices.  Higher prices increase the cost of living.  Making it more difficult for workers to get by without a pay raise.  Which puts pressure on employers to raise wages.  If they do they pass on these higher costs to their customers via higher prices.  It’s a vicious cycle.  And one all governments want to avoid.  Because higher costs reduce economic activity.  And that’s how governments get their money.  Taxing economic activity.

Enter wage and price controls.  The Roosevelt administration thought the way to solve the problem of inflation was simply passing a law to cap employee wages.  To halt the vicious cycle of escalating prices and wages.  Something employers didn’t like.  For that’s how they got the best people to work for them.  By offering them higher wages.  With that no longer an option what did these employers do to get the best people to work for them?  They started offering fringe benefits.  Which became a killer of business.

As People lived longer in Retirement Retiree Pension and Health Care Expenses Soared

Employers began offering health insurance and pensions as fringe benefits for the first time.  To get around the wage and price controls of the Roosevelt administration.  Which they had to pass on to their customers via higher prices.  So the wage and price controls failed to do what they were supposed to do.  Keep a company’s costs down.  Worse, these benefits made promises many of these businesses just couldn’t keep.

Roosevelt also empowered unions.   Who would negotiate ever more generous contracts.  By demanding generous pay and benefits for current workers.  And pensions and health care for retired workers.  But it didn’t end there.  The unions also expanded their membership as much as possible.  So in those contracts they also got very costly workplace rules.  If a lamp burnt out at a workstation the worker had to call an electrician to replace the lamp.  They could not screw in a new lamp themselves.  The unions defined every work activity in a workplace and created a job classification for it.  And only a worker in that job classification could do that work.  Which swelled the labor rolls at unionized plants.  Who all were receiving generous pay and benefits.  As were a growing number of retired workers.  Greatly increasing labor costs.

For awhile businesses could absorb these costs.  Business was growing.  As was the population.  There were more younger workers entering the factories than there were older workers retiring from them.  But things started changing in the Sixties.  The population growth rate flattened out thanks to birth control and abortion.  So as the population grew slower the domestic demand for manufactured goods fell.  While in the Seventies foreign competition increased.  So you had falling demand and a rising supply.  Making it harder to pass on those high labor costs anymore.  Which proved to be a great problem as their market share fell.  For as they laid off employees fewer and fewer workers were paying the pensions and health care costs for an ever growing number of retirees.  Pensions were chronically underfunded.  Worse, people began to live longer in retirement thanks to advances in medicine.  Increasing retiree pension and health care expenses for these businesses.  Bleeding some of them dry.

Bethlehem Steel filed Bankruptcy when they had 11,500 Active Workers and 120,000 Retirees and Dependents

Bethlehem Steel helped build America.  And win World War II.  It made the steel for the Golden Gate Bridge.  And the bridges between New York and New Jersey.  Many of the skyscrapers you see on Manhattan are made with Bethlehem steel.  Little Steel.  Second only to Big Steel.  U.S. Steel.  Big Steel and Little Steel dominated the US steel industry.  Until, that is, foreign competition entered their market.  And the steel minimills arrived on the scene.  Neither of which had unionized workforces.  Or those legacy costs (retiree pension and health care expenses).  Which spelled the doom of the sprawling Bethlehem Steel.  From 1954 to 2003 hot-rolled steel sheet prices rose 220%.  While wages soared over 900%.  And it got worse.

Employment peaked in 1957 at 167,000 workers.  By the mid Eighties that fell to 35,000.  With some 70,000 retirees and dependents.  That is, Bethlehem’s retiree costs were about twice their active labor costs.  As business continued to fall employment fell to 11,500.  While their retirees and dependents rose to 120,000.  Just over 10 retirees for each active worker.  Unfunded pension obligations soared to $4.3 billion.  Just impossible numbers to recover from.  Which is why Bethlehem Steel is no longer with us today.  The company was dissolved in 2001.  With International Steel Group (ISG) buying some of their remaining assets.  Then, in 2005, a foreign steel company, Mittal Steel, merged with ISG.  Leaving no remnants of Bethlehem Steel in American hands.

ISG got the steelworkers union to reduce the number of job classifications in the Bethlehem plants they took over from 32 to 5.  Greatly shrinking the labor rolls.  And increasing efficiency.  Helping these remaining assets to move forward.  The pension fund was taken over.  With retirees losing only about $700 million, giving retirees a pension of up to $44,386.  But retirees lost their health care.  Some $3.1 billion in spending obligations that the company couldn’t pay.  And didn’t.  A sad ending for an American great.  A failure the Roosevelt administration was responsible for.  As their good intentions resulted in unintended consequences.  Setting businesses up to fail with costly fringe benefits.  Adding yet another demand to the union’s list of demands.  Spending obligations these businesses couldn’t pay once domestic demand fell while steel supplies rose.  Leading to the inevitable.  Bankruptcy of large unionized companies.

www.PITHOCRATES.com

Share

Tags: , , , , , , , , , , , , , , , , , , ,

FT133: “Liberal Democrats want to run our lives because they are far smarter than the people voting for them.” —Old Pithy

Posted by PITHOCRATES - August 31st, 2012

Fundamental Truth

People like to Laugh and not get Weighed Down with the Serious Issues so they Watch the Fake News and SNL

Those on the Left are suave.  Hip.  Cool.  Funny.  And boy are they full of self-confidence.  They are so sure of themselves that they sound like they know everything.  That they are smarter than the average person.  Especially when they speak with arrogance and condescension.  When they laugh with all-knowing condescension and smirk they just seem like people we should agree with.  And many do.  For they sound so smart that they must know what they are talking about.  Besides, these people are the suave, hip, cool and funny people on television we so enjoy watching who are saying this.  We like these people.  And want to be like them.  So we make disparaging comments about conservatives like they do.

The people who get their ‘hard news’ from Jon Stewart on the Daily Show or from Stephen Colbert on the Colbert Report are probably like the people in their audiences.  Who laugh longer and harder when the humor is more derogatory.  Disparaging conservatives.  Or Republicans.  They are there for the laughs.  And they love the conservative insults.  Those watching at home laugh, too.  Because they have been conditioned for so long to laugh at conservatives.  From listening to their classmates in schools.  Their teachers.  Their professors in college.  Movies.  And, of course, television.  From the fake news shows.  To Saturday Night Live.  That made belittling conservatives an art.

These people like to laugh.  To enjoy life.  And not get weighed down with the serious issues.  Which is why they watch the fake news and SNL.  To escape.  And enjoy a good laugh.  But because they don’t like getting weighed down with the serious issues they typically don’t watch serious news.  So most of the news they get is from the fake news shows.  SNL.  And the liberal talking heads on the opinion/news shows that are more opinion than news.  And even on these opinion/’news’ shows they take cheap potshots at conservatives.  Laugh.  And smirk.  Which reinforces what they saw on the fake news shows.  Giving these derogatory attacks on conservatives more legitimacy.  Making them mainstream.  Normal.  And, therefore, correct.

Do those on the Left know their Idol, JFK, was a Tax-Cutter like Ronald Ragan?

As you watch these shows and hear these guffaws at the expense of some conservative have you ever wondered how much these people understand the underlying issue that their lampooning the conservative about?  Do they have a fundamental understanding of economics?  Can they differentiate Keynesian economics from the Austrian school of economics or the Chicago school?  Do they understand the connection between monetary policy and inflation?  Do they understand the affect of the population growth rate on government spending?  Here’s a hint.  Think of why Social Security and Medicare are going bankrupt in the very near future.  What’s the connection?  If the number of taxpayers grows at a slower rate than those retiring from the workforce you get what we have today.  And no amount of taxing the rich can change that.

Can they name the Founding Fathers?  Do they know what each did to help found the nation?  Other than own slaves?  Do they understand that they abandoned a slave-based economy in the North because it was a very inefficient economic model?  As well as immoral.  Slavery didn’t make the nation rich.  It only made a few southern plantation owners rich.  Do they understand why there was slavery in a nation built on liberty?  It was the only way to get the southern plantation owners to join the union.  And the southern plantation owners held power in the southern states.  If the large union failed there would have been smaller unions of states.  In the northeast.  The middle states.  The south.  In the west.  With the British, French and Spanish at their borders.  Had the northern states had their way on the issue of slavery at the Founding there would not have been a United States.  But more of the Old World in the New World with the constant fighting that has plagued the Balkans.  Don’t believe that?  Well, it has happened.  America’s bloodiest war, the American Civil War, was a war between sectional interests.  Which the South lost because they and their slave-economy was poorer than the non-slave North.  And finally on the issue of slavery do they understand that it was the Republicans that ended slavery?  That the Democrats pushed the Jim Crowe Laws?  That the Democrats filibustered the Civil Rights Act of 1964?  And that more Republicans voted for that act than did Democrats?  I’m guessing when those on the Left who call Republicans racists do not know the history of the United States.

Do those on the Left know their idol, JFK, was a tax-cutter?  Who favored trickle-down economics?  It’s true.  His policies of tax cuts produced an economic boom.  Just like they did when Ronald Reagan continued the work started by JFK.  Which was rudely interrupted by LBJ, Richard Nixon, Gerald Ford and Jimmy Carter.  Do they understand that using corn for fuel leads to higher grocery prices?  And more hunger in the less developed world?  Do they understand that if everyone drove an electric car that it would be equivalent to adding one air conditioner on the electric grid for each car?  And the only way to meet that additional demand is by adding more coal-fired power plants?  Producing more air pollution than the cars they replaced?  Of course they don’t know this.

People tend to Vote Conservative because of what they Know not what they Feel

Those on the Left have little understanding of what their policies will do.  As they’ve littered the nation with the unintended consequences of their best intentions.  Which typically makes whatever problem they’re trying to fix worse.  Such as trying to help single mothers with AFDC.  Aid to Families with Dependent Children.  That relieved fathers of their parental responsibilities by having the state be husband and father.  Which destroyed poor families in the inner city.  But despite their failures the Left continues with more of the same.  Resorting to the same old attacks on conservatives.  Knowing that those on television will take their cheap potshots, laugh, smirk, disparage and condescend.

They hate conservatives.  Not for any rational reasons.  They just have been conditioned to.  And those on television are wealthy enough that they don’t have to live in the real world where they have to deal with those unintended consequences.  Insulated from the fallout of horrible policy they can go through life whistling a happy tune.  Knowing that even though the policies they support have failed they can feel good about themselves because they had the best of intentions.  That they care.  They are so sure of themselves that they could never conceive that they could, perhaps, be wrong.  And the reason why they are so arrogant, condescending and downright mean is that conservatives don’t accept their infallibility.  While these uppity conservatives dare to believe they could actually be right.

Liberals believe that not only can they be right but that they always are right.  Because they are so much smarter than the average person.  Which is why they believe they should run our lives.  People have other things to worry about.  Like sitting in the audience of a fake news show.  These people need help.  Because they can’t get by in life without a progressive government looking out for them.  Life is complicated.  And hard.  They need help.  They need smart people looking out for them.  So these people vote liberal.  To leave the governing to experts.  So those who can’t live without the help of smarter people providing for them decide who those smarter people are.  Even though they are the least qualified to do so.  For it’s not the people who have a fundamental understanding of economics voting for liberals.  People who understand our history.  Those who run small business.  The fiercely independent with rugged individualism.  The people who have built this nation.  No.  These people tend to vote conservative.  Because of what they know.  Not what they feel.  Like others do.  Like those who vote liberal.  Because they don’t know any better.  But feel good about who they vote for.

www.PITHOCRATES.com

Share

Tags: , , , , , , , , , , , , , , ,

FT130: “Tax dollars pay the bills. Not tax rates.” -Old Pithy

Posted by PITHOCRATES - August 10th, 2012

Fundamental Truth

Even though we have a Progressive Tax System we don’t have a Progressive Movie Ticket Price System

The average price for a movie ticket is about $8.  A flat price.  In dollars.  Whatever you earn.  If you earn $50 in gross daily earnings you pay $8.  If you earn $100 in gross daily earnings you pay $8.  If you earn $200 in gross daily earnings you pay $8.  Is that fair?  Based on the amount people could pay, no.  Because $8 is a different percentage of each earner’s daily gross pay.  It’s only 4% for those who earn $200 daily.  It’s 8% for those who earn $100 daily.  And a whopping 16% for those who only earn $50 daily.  Is that fair?  Well, if we measure fairness by the way we pay income taxes, no.  This is not fair.

Look, we live in a fair country.  We have a progressive tax system.  So we should have a progressive movie ticket price system.  And someone who only earns $50 a day shouldn’t be paying 16% of their earnings for a movie ticket.  Not when someone who can more easily afford to pay more only pays 4% for a ticket.  These numbers are upside down.  The lower income people should only pay 4%.  The middle income people should pay 8% because they can more easily afford it.  And the high income earner should pay 16% because if they don’t they’re not paying their fair share.  So let’s say the government makes it so.

Once we make going to the movies fair this is what we can expect at the box office.  Those with daily earnings of $50 pay only $2 for a ticket.  Those with daily gross earnings of $100 pay $8.  And those with gross daily earnings of $200 pay $32 for their movie ticket.  The low-income earners will be very happy with this new fairness.  Those middle-income earners will have mixed feelings but won’t complain because they don’t have to pay any more.  The high-income earners, though, will not be happy with the new ticket pricing policy.  Because sitting in a theater is not worth $32 a ticket.  Especially if they’re taking their spouse and 3 kids.  Making a night at the movies cost $160.  Or 80% of their daily gross earnings.  And that doesn’t include any concession snacks.

The Problem with Fairness is that you can have the Best Intentions and end up with the Worst Results

You know who would love this?  Theater owners.  (As well as movie studios and the actors who share in box office sales.)  They would all be for fairness.  Because they would see greater earnings.  The typical theater seats about 225.  At $8 a ticket that comes to $1,800 in revenue per show.  When they implement the fairness policy, though, they could do better.  Say 40% of theater goers are low-income, 40% are middle-income and 20% are high-income.  Based on the fair ticket price policy the theater owner will increase earnings to $2,340.  That’s a revenue increase of $540.  Or an increase of 30%.  So, sure, the theater owners would all be for fairness when it comes to ticket prices.  (As well as the movie studies and actors.)

Until, that is, when the high-income people stop going to the theater.  If their seats remain empty the theater will not collect their $1, 440 in revenue per show.  Their seats will remain empty.  And half the people watching the movie will be paying only $2 for their ticket.  This will reduce revenue by $900.  Or a decrease of 50%.  Which will change the way theater owners think about fairness.  As they struggle to stay in business.  And if they can’t change the government fair pricing system their costs will exceed their revenue.  They will have to make cuts everywhere they can to get their costs under their revenue.  Lowering the quality of the movie going experience.  To the point people just stay home and watch something they download online while eating microwave popcorn.  Eventually shuttering the theater.  And putting more people out of a job.  (Not to mention making it impossible for a movie studio to make a profit on all but the biggest blockbusters and the cheapest to films to make.  And the big movie stars would all see a hug pay cut.  Which would ripple through the movie industry putting an even greater number of people out of a job.)

This is the problem with fairness.  You can have the best intentions.  And end up with the worst results.  That’s because the ‘fairness people’ think everything in the economy is static.  That a change ‘here’ won’t effect change ‘there’.  But the economy isn’t static.  It’s dynamic.  And a change ‘here’ does effect change ‘there’.  Because people are thinking, rational beings.  While state planners think they know what’s fair the people living their policies often think otherwise.  And change their behavior.  To minimize their costs under their fairness policies.  Because that is human nature.  Just like it is for people every day who shop around to find the lowest price and best value before spending their hard-earned money.

The Rich are more Generous in their Tax Dollar Contributions than the Poor and the Middle Class

The Left wants to raise the tax rates on the high-income earners.  To make them pay their ‘fair’ share.  Foolishly thinking that doing this will bring in more tax revenue.  It won’t.  Because people are thinking, rational beings.  These ‘rich’ people can either invest their money into businesses and create jobs.  Or they can put their money into treasury bonds and create no jobs.  One is high risk (creating jobs).  One is low risk (not creating jobs).  And when you increase the taxes on the high-risk investment you reduce the return on that investment.  And reduce the incentive to create jobs.  So instead of investing in jobs they park their money safely in bonds.  Reducing the income (business owner and employees) the government can tax.  As well as reducing a host of other taxes (sales tax, property tax, Social Security tax, Medicare tax, etc.).  All in the name of fairness.

So why do they do it?  Why are they always imposing fairness on us?  Because when it comes to class warfare tax rates are much more useful in defining fairness.  For they misdirect the people into thinking rich people don’t pay enough in taxes.  Let’s look at a married couple filing jointly who earn a combined income of $125,000.  Based on the 2012 federal income tax rates they will pay approximately $19,470 in federal taxes with a top marginal tax rate of 25%.  Now compare that to a rich person not paying their ‘fair share’ in taxes.  Someone who earns a million dollars in capital gains on investments.  One of those the ‘fairness people’ really dislike.  At a capital gains tax rate of 15% he or she pays $150,000 in taxes.  Now 15% is less than 25%.  And those on the Left will scream, “Unfair!”  Even though that capital gains tax rate will generate $130,530 more in tax dollars.  Or 670% more than the married couple paying a top marginal tax rate of 25%.

So is the ‘rich’ investor paying his or her fair share in taxes?  Well, he or she is sure paying a whole lot more in taxes than that married couple filing jointly.  Even if it’s at a lower tax rate.  Is that fair?  Is that enough?  It depends on how you measure fair.  If you measure by tax rates the rich are tax cheapskates.  If you measure by tax dollars then the rich are very generous in their tax contributions.  More generous than the poor and the middle class.  And that’s what really counts.  Tax dollars.  Because tax dollars pay the bills.  Not tax rates.

www.PITHOCRATES.com

Share

Tags: , , , , , , , , , , , , , , , , , , , , ,

FUNDAMENTAL TRUTH #84: “The bigger and more complex government gets the more unintended the consequences.” -Old Pithy

Posted by PITHOCRATES - September 20th, 2011

Filthy, Stinking Hippies never Liked Income Disparity.  Or Real Work.

Say you’re a server at a nice restaurant.  And you’re really good.  People ask to sit in your section.  For your prompt and courteous service.  And they show their appreciation.  With big tips.  And frequent trips to the restaurant.  Good food.  And great service.  It’s what makes a restaurant successful.

Now let’s say the restaurant owners retire and turn over the business to their children.  And let’s say they’re liberal Democrats.  Children of the Sixties.  Hippies.  Filthy, stinking hippies.  And still are.  Though they may bathe more these days.  Anyway, they take over the exploitation of the working class in this bourgeois restaurant.  (They see all business in these terms.)  And they’re going to make some changes.

They never liked the income disparity they saw between the servers.  (Or real work for that matter.)  And they don’t like you.  Because you’re getting more in tips than the other servers.  And that just isn’t fair.  You’re just lucky to get better tables.  As if you won some lottery in life.  It’s only blind, dumb luck that makes you the high earner in the restaurant.  So they’re going to level the playing field.  Make it fair for everyone.  Not just for the rich.  You.  But for everyone.  From now on all tips go into a jar.  And at the end of the day they will divide those tips evenly between all servers.  Everything fair.  And everyone happy.

People don’t Approve of Slavery and Prefer to Keep the Fruits of Their Labor

Or so they would believe.  Because you’re not going to be happy, are you?  I mean, you know why you made more in tips.  You provided exceptional service.  And your reward for your hard work?  A punitive tax.  They’re going to share part of your tips with the less exceptional servers.  So what will you do?

I’m guessing that you’re not going to say, “Vive la revolución.”  And work even harder.  Instead I’m betting that you will be looking for a new job.  At a restaurant that rewards hard work.  And if there are no other food service jobs available?  Because liberal Democrats are in power?  And they’ve killed the economy?  Well, then, you just won’t work as hard.  Because you don’t approve of slavery.  Having the fruits of your labors given to others.

So the new owners, the filthy, stinking hippies, will lose their best server.  And soon will notice a steady decline in the quality of service.  For their servers quickly learn that working harder doesn’t mean any more pay.  So they don’t.  Work harder.  Food sits in the kitchen longer.  By the time they serve it to the customers it’s lukewarm.  They don’t refill drinks.  Customers begin to complain.  Even about the quality of the lukewarm food.  The executive chef quits.  Business drops off.  The business goes into debt.  Losing some $10,000 each month.  And things get so bad under the new owners that not even Robert Irvine could save this restaurant.

The new owners thought their way was going to make a better work environment for their employees.  But the only workers who liked the new policies and stayed were their worst employees.  All the good ones quit.  And those who remained lost their jobs eventually as the business finally went under.  So everyone in the end lost.  Because these hippies thought they knew what was best for everyone.

Accidents Sometimes Happen when Men Control Complex Machines

So bad ideology has unintended consequences.  But complex systems to simplify complex things also have unintended consequences.

The modern jetliner is a complex machine.  They can literally take off, fly and land themselves.  But don’t.  Pilots still take off.  And land.  But the other 99% of the time these aircraft fly themselves.  Pilots input data into the flight computers.  And the computers fly the aircraft.

So pilots don’t fly as much as they used to.  They log a lot of hours in the cockpit.  But they’re not really flying.  They’re operating computers.  Pushing buttons.  Turning dials.  And communicating with air traffic controllers.  They’re not ‘connected’ to the aircraft like in the old days.  Fly-by-wire technology insulates the pilot from the flight controls.  The days of stick and rudder are gone.  When a pilot was one with the aircraft.  Through constant feedback via the senses.  Flying by the seat of the pants.  When a hand on the steering column told a pilot how the plane was flying.  Even while on autopilot.  While having a conversation with a flight attendant standing in the cockpit door.

Back then you needed far more piloting skills than you do today.  Because there were no flight computers.  Like they have today.  That’s why a lot of pilots came out of the military.  Because the military pushed pilots in their training.  Taught them to fly through anything that can happen while flying.  Including recovering from a stall.  Something that just doesn’t typically happen in a modern jetliner these days.

Pilot error has accounted for the majority of accidents.  So removing the pilot from the ‘flying part’ of flying an airplane made sense.  And it would make aviation safer.  And it has.  This is not to criticize pilots.  It just shows that accidents sometimes happen when men control complex machines.  So reducing the amount of time the pilot is in control of the aircraft makes them safer.  That is, as long as the computers have good data.

The Safer You Make Flying by Removing the Pilot from the Flying the less Skilled Pilots Become

And that’s a problem.  Sometimes the computers don’t have good data.  For various reasons.  Such as iced up airspeed sensing pitot probes.  Which has happened a few times.  Giving false airspeed data.  Or sometimes conflicting airspeed data.  There’s more than one probe.  And different flight computers get their airspeed from different probes.  One could show a dangerous high airspeed.  Another can show the actual airspeed.  Giving a pilot a bit of a problem.  Which is compounded if that pilot spent more time inputting data to a computer than flying.  Because when computers get bad data they often disengage.  And the modern pilot will spend most of his or her time trying to reengage it.  Instead of flying the airplane.  As they are trained to do.  Because it’s safer.

A dangerous high airspeed indicates that the plane may be accelerating.  Past its maximum airspeed rating.  Which could make the plane break up in flight.  So a pilot may pull back the engine throttles.  To slow the plane.  To keep it from breaking up in flight.  Of course, if that was an erroneous airspeed, the pilot will only slow the plane down.  And perhaps cause it to stall.  And that has happened, too.

A plane has a ‘stick shaker‘ to warn the pilot of a potential stall.  Normally after you get a stick shake you push the yoke forward to lower the nose and pick up speed.  Of course, if you just got an over-speed warning you might not do this.  And you may interpret that stick-shake as buffeting from the plane just before it breaks up in flight.  So you may raise the nose.  And pull the throttle levers back. To slow the plane down.  And that’s exactly what you will do.  Slow the plane down.  Right into a stall.  Which is flying too slowly to create lift with the wings.  And once the plane stalls it will just fall out of the sky.

There’s a tradeoff in aviation.  The safer you make flying by removing the pilot from the flying the less skilled pilots become.  So when something happens, such as an erroneous airspeed indication, their initial reaction is to fix the computer.  Not fly the airplane.  And planes have fallen out of the sky because of this.  Because even the simple problems don’t have a lot of time to fix.  An old-school pilot who flew B-52s, on the other hand, would probably say something like this.  “Hot damn.  The idiot box is broken.  Now I get to fly this son-a-bitch.”

When Legislation goes Wrong those in Government Simply Say they had Nothing but the Best Intentions

Every time you try to make something too complex.  Or try to change human behavior.  You are going to get unintended consequences.  Always.  Because complex things are complex.  And people are like snowflakes.  No two are alike.  And it is the height of arrogance to believe that you know an individual better than they know themselves.  Or that ‘one size’ fits all when it comes to solutions.

But that’s government.  Complex.  And where the few think for the many.  And decide what’s best for them.  This is a recipe for unintended consequences.  Which is why so much of their legislation goes wrong.  And when it does they simply say they had nothing but the best intentions.

Of course, you see what good intentions can do in a restaurant.  Or in a jetliner at 30,000 feet.

www.PITHOCRATES.com

Share

Tags: , , , , , , , , , , , , ,

LESSONS LEARNED #46: “Liberals say ‘do as I say not as I do’ because they can’t point to anything worthwhile they’ve done.” -Old Pithy

Posted by PITHOCRATES - December 30th, 2010

The High Compliance Costs of The American with Disabilities Act of 1990

I have a friend who worked at a company that was renovating one of their buildings.  He was in a foul mood one day.  The renovation included a high-end sales and marketing center.  Some place to impress clients.  Included in the renovation was a media room for multimedia presentations.  It was a competitive business; they were looking to woo some clients away from their competitors.  And to keep their current client base from straying to the competition.

It was an existing building.  Space was tight.  They were trying to do a lot in a small footprint.  And they did.  I saw it one day before the work was completed.  Wow.  It was gorgeous.  Especially the media room.  It looked like something you saw in a 5-star hotel.  They built the control room for the media room on a raised platform.  Equipment racks would sit on the floor.  And the cabling would leave the racks through the raised floor and out into a floor duct wiring system.  The walls and ceiling were some nice architectural finishes.  There was no drop ceiling.  No place to conceal wiring but in the walls.  And in the floor.

Well, there was a problem.  The American with Disabilities Act of 1990 (ADA) was relatively new.  This architectural firm complied with the new law in almost every place.  Drinking fountains were wheelchair accessible.  There were ramps to get up the curb so wheelchairs could enter the building.  And various other compliances.  The building complied.  Everywhere.  Everywhere, that is, but one area.  The control booth for the media room.  On the raised floor.  There was a step to enter this room.  And no space to add a ramp.  They fought the building inspectors.  The various authorities having jurisdiction.  But to no avail.  The spiffy new sales and marketing center would not be as designed.  They had to redesign it.  Rebuild it.  And delay the scheduled completion date.  Hence my friend’s foul mood.

The Government Exempts themselves from the High Compliance Costs of their own Legislation

You’d think the authorities having jurisdiction (AHJ) would have given a waiver.  But they didn’t.  It was a big office building.  And a small control room.  Less than 1% of the company’s total employees would ever enter that room.  Didn’t matter.  Some of the AHJ enjoyed their power.  Others were simply afraid someone would sue them down the road.  So they delayed the project. 

Unfortunately, they had already begun to relocate operations from the old to the new.  They suspended all presentations for a month at this facility so the old conference room could be demolished and rebuilt into something else.  And it was.  Demolished.  Now they had no place to wow their customers.  For another month or two.  That’s a whole quarter they had to reschedule around.  It did not impress their clients.  And may have cost them one or two.  All because of the silly inflexibility of the AHJ.

This is a good example of the unintended consequences of liberals’ best intentions.  It’s a microcosm of the ADA’s affect on business everywhere.  Sure, they had a noble goal.  To make a barrier-free world for all.  But the compliance costs to fully meet the letter of the law were brutal to small and medium sized businesses.  But Congress didn’t care.  It’s ‘do as I say, not as I do’.  Literally.  You see, Congress exempted themselves from the American with Disabilities Act of 1990.  Why?  Wait for it.  Because they said it would be too costly for them to comply.  And they said this publicly to justify their exemption from the act.  Unbelievable.  The height of arrogance and condescension.

The High Compliance Costs of OSHA

Well, Congress was dragged kicking and screaming into the real world.  Thanks to Newt Gingrich and the Republican Revolution of the 1994 midterm elections.  That Congress authored the Congressional Accountability Act of 1995.  Congress would no longer be above the law.  Now they, too, had to comply with the Age Discrimination in Employment Act of 1967, the Civil Rights Act of 1964, the Family and Medical Leave Act of 1993 and the Occupational Safety and Health Act of 1970.  To name a few.

I have a friend who works in construction in a metropolitan area.  He’s a project manager for a construction manager.  And you should hear some of the things he tells me.  Big construction projects often have federal money involved.  And when they do, there are some pretty restrictive rules.  Especially on the big projects.  Why?  Because big projects have deep pockets.

You would not believe some of the Occupational Safety and Health Act (OSHA) requirements on a construction project.  Well, on big projects, because no small contractor could afford the compliance costs.  Or the owner, for that matter.  A couple come to mind.  He said that a worker had to tie himself off when working on a ladder more than 6 feet off the ground (a nylon safety line tied to a body harness attached to something fixed and immovable).   Contractors had to conduct daily safety meetings with their field employees.  They had a safety trailer on site with a couple of safety officers to walk the site and police safety.  They had to get ‘hot work permits’ anytime they used a welding torch or other open flame.  You get the idea.  Workers couldn’t do anything dangerous without an inordinate investment in time and money on part of the contractor.  And yet workers still did stupid things.  Like refuse to wear a hardhat on a hot day.  Of course, when they did and OSHA happened to be on site, they’d write a pretty big fine.  And guess who had to pay it?  Not the employee.  But the employee’s boss.

But when Congress passed the Occupational Safety and Health Act of 1970, they exempted themselves.  Because it would have cost them too much to comply.

The High Compliance Costs of Affirmative Action

But there’s more.  When federal money is involved, there are other hoops to jump through.  You see, the metropolitan area had a large minority population.  And the federal government wanted minority owned businesses to share in some of that construction money.  It was affirmative action.  To help minority owned businesses.  A certain percentage of the work was set aside for these businesses.  The problem was big projects have tight schedules and high-tech building processes.  The kind of work that big and established contractors do all of the time.  And the kind that little contractors starting out who need help (the kind of contractor the government wanted to help) had little to no experience doing.  The idea was for the big guy to mentor the little guy.  Which is not easy to do when competitively bidding work.  Helping these contractors earns no revenue.  It just adds cost.  So you either include the cost up front (and not get the job because you’re not the low bidder).  Or you leave it out and try and recoup it on the back end (I believe the technical term is raping and pillaging on change orders).

Well, there are rules.  And it starts at bid time.  Your bid form asks for the percentage of these minority businesses you’ll be using.  There’s a minimum required.  But you can use more.  And the government weighted things differently.  You counted contractors at their full contract value.  But material suppliers were discounted (I don’t remember, but it might have been 50%).  Suppliers are safer to use because you can use your own highly skilled work force.  So you max these out.  Then you use some small minority contractors on some easier work you can peel off from the rest.  It’s nothing against these guys.  They do well on some of the less exotic stuff.  But some of the other stuff is just over their skill level.  Because they’re new and inexperienced.

Now, because they can use suppliers, there are minority ‘suppliers’ out there looking to exploit this set aside.  They’re not really a supplier, though.  They’re a ‘pass-through’ company.  What they do is offer their services to basically buy from a contractor’s preferred supplier and then resell to the contractor for a small markup.  This basically defeats the whole point of helping minorities, but it helps you stay on schedule.  Construction today uses just-in-time deliveries.  Especially on construction site with no storage area available for material.  And they need their well established working relationships to feed their supply pipeline.  It usual works.  But sometime a contractor’s audit will disallow a previously approved ‘pass-through’ supplier.  And when they do, look out.  If you don’t meet the percentage you included on your bid form you’re looking at some serious fines.  My friend told me the government wrote this one poor contractor of his a fine greater than the value of his contract.

Liberal Legislation:  Compliance Costs, Avoidance Costs and Unintended Consequences

The federal government has no business experience.  At least, the liberal left.  But they’re always trying to make business better.  And fairer.  This results in huge compliance costs.  And avoidance costs.  The federal government has little sympathy for the swath of destruction their legislation causes.  Especially when they were exempting themselves from much of that legislation. 

But it’s ‘do as I say, not as I do’.  Because they feel they’re above the law.  Or, at least, should be.  So they continue to tinker.  Failing more times than not.  And causing a slew of unintended consequences.  Despite their best intentions.

www.PITHOCRATES.com

Share

Tags: , , , , , , , , , , , , , , , , , , , , , , , , , , , , ,