Women and Men in the Exact Same Jobs are earning the Exact Same Income

Posted by PITHOCRATES - April 13th, 2014

Week in Review

The Democrats are running out of ways to buy votes.  Which they desperately need as more people suffer the ravages of Obamacare.  Who will be entering the voting booth angry this fall.  Looking for someone to blame for taking away the health insurance and doctors they liked and wanted to keep.  And being that Obamacare was passed on purely partisan lines (no Republicans voted for it) the Democrats are sweating bullets as the midterm elections approach.  So they turn to an oldie but goldie.  The pay gap lie (see What pay gap? Young women out-earn men in cities, GOP pundit claims posted 4/8/2014 on PolitiFact).

We watched the debate play out between conservative pundit Sabrina Schaeffer and liberal pundit Elizabeth Plank on MSNBC’s The Reid Report, and again later between former White House adviser Anita Dunn and conservative pundit Genevieve Wood on CNN’s The Lead with Jake Tapper.

“If you compare women to men in the same job with similar background, similar experiences that they bring to the table, the wage gap all but disappears,” Wood said. “Women have made great strides. Instead of celebrating that, this is a political year, the White House wants to portray this war on women…”

PolitiFact has given you the nuts and bolts about the 77 cents statistic — you can read the two most important works in this area here and here. Basically, there is a wage gap, but it tends to disappear when you compare women and men in the exact same jobs who have the same levels of experience and education.

Well, there it is.  Equal pay for equal work.  When men and women have the same education, experience and skills doing the same job there is no pay gap.  Case closed.  In fact, single women without children are actually earning more than single men.  Which is the key to this argument.  For a woman’s earnings fall with interruptions in her career as she takes time off to have children.  Or works reduced hours to care for her children.  This is where the pay gap comes in.  When you compare apples and oranges.  Comparing women who take time off or cut back their working hours or take lower paying jobs that allow her to spend more time with her children to men who don’t.  Because they’re single.  Or are married and have a wife who takes time off to spend more time with their children.

In fact, women are making great strides.  At the expense of men (see Is the Gender Pay Gap Closing or Has Progress Stalled? by Josh Zumbrun posted 4/11/2014 on The Wall Street Journal).

“There’s no question that one of the things that ‘77 cents’ doesn’t emphasize is that there’s been enormous gains,” said Harvard University economist Claudia Goldin.

Looking at the data above shows three clear trends that have emerged since the 1970s:

1) The spread between the sexes narrowed between 1970 and 2000. It has made little progress since.

2) Men have made no income gains in over four decades. Adjusted for inflation, men earn less today than they did in 1972.

3) Women continued to make gains until the recession began. Whatever forces slowed the income growth of men from 1970 to 2000 did not halt the income growth of women.

Simple economics.  Supply and demand.  Men were making more and more every year.  Until the Sexual Revolution.  When women began to flood the labor market.  With more labor available the cost of labor fell.  So as women gained education and experience the supply of educated and experienced workers grew.  Allowing employers to pay less for these now more plentiful educated and experienced workers.  Which is why as women enjoyed income gains men saw their income decline when adjusted for inflation.  Simple economics.  Supply and demand.

A long time ago in high school chemistry I remember my lab partner did not complete a homework assignment that was part 1 of a 2-part grade.  There was a homework part.  And a lab part.  Being a nice person I asked the teacher if we could share the grade on the homework part (which I had received an ‘A’ on.  Or a 4.0).  The teacher was more than generous.  He said, “Sure.  A 4.0 divided by 2 equals a 2.0 for each.”  Or, a ‘C’ for each.  Suffice it to say my lab partner did not get a 2.0 on the homework that went undone.

This is why men are earning less.  Because women have entered the workforce.  The revenue businesses use to pay their employees didn’t increase like the number of educated and experienced workers did.  So the amount of available revenue for pay and benefits was shared by more people.  Each getting less than a man did before the Sexual Revolution (when adjusted for inflation).  So instead of a single paycheck supporting a family these days it now takes two paychecks.  Because men are making less today since women have lowered the price of labor.  By increasing the supply of labor.  Not because they are paid less.  But because there are so many workers for so few jobs that businesses don’t have to pay as much as they once did to hire people.  Which is more to blame for pressure on wages than any pay gap.

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Marx, Lenin, Trotsky, Stalin and the Soviet Union

Posted by PITHOCRATES - February 18th, 2014

History 101

Marx called for a Dictatorship of the Proletariat where the Workers controlled the Means of Production

Karl Marx did not like capitalism.  Or middle class people that used money to make money.  The bourgeoisie.  Who exploit the working man.  The proletariat.  The bourgeoisie used their capital to exploit the labor of the working man (i.e., taking a risk and investing in land, factories, machinery, labor, etc.) to make money.  While the working man slaved away at slave wages creating all the great things we have in the world.  Of course, the proletariat could not do any of this unless others took risks and invested in land, factories, machinery, labor, etc.

This was just not fair to Karl Marx.  Because the industrial bourgeoisie had all the power.  And their exploitation of the proletariat was nothing more than a dictatorship of the bourgeoisie.  So Marx created a socio-economic philosophy to address this dictatorship.  Marxism.  And called for a social transformation.  For working men everywhere to unite.  And break the chains that bound them in the dictatorship of the bourgeoisie.  Calling for a dictatorship of the proletariat.  For the workers to control the means of production.  In a new system that replaced capitalism.  Socialism.  Until they could usher in the true ideal.  Communism.

In capitalism the bourgeoisie get rich creating neat things people discover and want to buy.  In communism there would be no bourgeoisie using the means of production to make a buck.  Instead, wise and selfless people would determine what was best for the people.  Instead of free markets allocating scarce resources economic planners would.  And they’d do it better.  Because they are selfless.  Creating large surpluses that would go not into some rich capitalist’s bank account.  But they would fairly distribute this surplus among the working class.  So society as a whole would be better off.  Sounds great.  But if the market didn’t make the decisions of what to produce who did?  As it turned out for Marxism that was a very difficult question to answer.

Leon Trotsky was a Like-Minded Marxist and the number two Communist behind Lenin

The Russian people were growing tired of World War I.  And Tsar Nicholas.  In fact they had it with the Russian Empire.  Even before World War I.  Although serfdom was abolished in 1861 the lives of peasants didn’t improve much.  There was still famine.  And the serfs had to pay a lot to their former landlords for their freedom.  So there was revolutionary fervor in the air.  And a few peasant uprisings.  As well as a few revolutionaries.  Such as Vladimir Ilyich Lenin.  Who was a Marxist.  His anti-Tsarist political activity got him arrested and exiled a few times.  In fact, during World War I he was living in exile in Switzerland.  Hoping that the Germans would weaken Tsarist Russia enough to kick off a socialist revolution in Russia.

When revolution did break out Lenin was anxious to return to Russia.  But being in Switzerland posed a problem.  It was surrounded by warring countries.  Lucky for him, though, the Germans were anxious to close the eastern front of the war.  And a little revolution in Russia could do just that.  So they transported Lenin through Germany and helped him return to Russia.  They travelled north.  Took a ferry to Sweden.  Then by train to Petrograd.  Formally Saint Petersburg (Peter the Great’s new capital on the Baltic Sea).  Which was later renamed Leningrad.  And then later renamed Saint Petersburg.  Where he would lead the Bolshevik Party.  And the world-wide socialist revolution against capitalism.

Leon Trotsky was a like-minded Marxist.  And an anti-militarist.  He had a falling out with Lenin but eventually reunited.  With Trotsky becoming the number two communist behind Lenin.  Trotsky addressed a problem with Marxism for Russia.  Socialism was to be the final step AFTER capitalism.  Once there was a strong industrial proletariat.  Russia didn’t have that.  For it was one of the least advanced countries in the world.  An agrarian nation barely out of the Middle Ages.  So Russia had to industrialize WHILE the proletariat took over the means of production.  Which brought up a big problem.  How could a backward nation industrialize while having a revolution?  How could they do this without other advanced capitalistic countries coming to the aid of the bourgeoisie?  Which Trotsky answered with his Permanent Revolution.  For the Russian socialist revolution to be successful there had to be socialist revolutions in other countries, too.  Thinking more in terms of a worldwide revolution of industrialized states.  And not just in Russia.  Something another Marxist disagreed with.  Joseph Stalin

Communist States have Guards on their Borders to prevent People from Escaping their Socialist Utopia

During these revolutionary times workers’ councils were appearing throughout the country.  Soviets.  Which helped stir up the revolutionary fervor.  In 1917 the imperial government fell.  The Bolsheviks killed the Tsar and his family.  And Russia fell into civil war.  Which the Bolsheviks won in 1922.  And formed the Soviet Union.  Or the Union of Soviet Socialist Republics (USSR).  That stretched from Eastern Europe to the Pacific Ocean.  Under the rule of Vladimir Ilyich Lenin.  Until he died in 1924.  Then Joseph Stalin took over after a brutal power struggle.  Even exiled Leon Trotsky.  And established totalitarian rule.  Stalin created a planned economy.  Rapid industrialization.  And collectivization.  As well as famines, forced labor, deportation and great purges of his political enemies.  To strengthen his one-party rule.  To protect the socialist revolution from a return of capitalism.

The Russian Revolution was the only successful socialist revolution in Europe.  The dictatorship of the proletariat did not happen as Lenin and Trotsky had envisioned.  So Stalin abandoned the idea of Permanent Revolution.  And adopted Socialism in One Country instead.  To strengthen the Soviet Union.  And not support a world-wide socialist revolution against capitalism.  In direct opposition of Trotsky.  To aid in the USSR’s industrialization Stalin made a pact with the devil.  Adolf Hitler.  And entered an economic agreement that would allow Hitler to build and test his war machine on Soviet soil that he would use in World War II.  Then came the Treaty of Non-aggression between Germany and the Union of Soviet Socialist Republics.  And the secret protocol.  Where Nazi Germany and the Soviet Union agreed to conquer and divvy up the countries located between them.

Trotsky did not like what the Soviet Union became under Stalin.  An oppressive dictatorship of Joseph Stalin.  Not the dictatorship of the proletariat envisioned by Karl Marx.  And he didn’t like that pact with a militarist Nazi Germany.  He predicted that Stalin’s USSR would not last.  Either suffering a political revolution like Tsar Nicholas suffered.  Or it would collapse into a capitalist state.  Stalin disagreed.  And killed him and his family.  Getting rid of the last of the old Bolsheviks.  Leaving him to rule uncontested until his death in 1953.  Exporting communism wherever he could.  Where it killed more people than any other ideology.  Until the great and brutal socialism experiment collapsed in 1991.  For Trotsky was right.  It could not survive when a better life was just across a border.  Which is why all of the communist states have guards on their borders.  To keep their people from escaping their socialist utopia.

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President Obama’s 2014 State of the Union Address

Posted by PITHOCRATES - January 30th, 2014

Politics 101

Democrats offered Enthusiastic Applause for Unsound Policy Proposals that have no Basis in Reality

President Obama’s 2014 State of the Union address was a little longer than an hour.  But if you didn’t look at a clock it felt a lot longer.  For it was the same tripe you hear all the time from this administration.  And the political left.  It was full of misleading statements.  Inaccurate facts and figures.  And some lies.  The usual stuff you expect from the liberal left.  But what was really disturbing was the enthusiastic applause for some really unsound policy proposals that have no basis in reality.  Showing either how clueless these enthusiastic Democrats are about economics, business, national security, etc.  Or how amoral they are in their quest for power.  As they judge and implement policy not by how it will improve the lives of Americans.  But how it will improve their lives in government.

Some Big Reasons why Businesses export Jobs are Taxes, Regulations and Labor Costs

If there was ever an example of what people not to have in power this state of the union theater was it.  Following are excerpts from President Obama’s speech (see FULL TRANSCRIPT: Obama’s 2014 State of the Union address posted 1/28/2014 on The Washington Post).  Comments and analysis follow each excerpt.

And here are the results of your efforts: the lowest unemployment rate in over five years; a rebounding housing market — (applause) — a manufacturing sector that’s adding jobs for the first time since the 1990s — (applause) — more oil produced — more oil produced at home than we buy from the rest of the world, the first time that’s happened in nearly twenty years — (applause) — our deficits cut by more than half; and for the first time — (applause) — for the first time in over a decade, business leaders around the world have declared that China is no longer the world’s number one place to invest; America is.

The total number of people who left the civilian labor force since President Obama took office is 11,301,000 (see The BLS Employment Situation Summary for December 2013 posted 1/13/2014 on PITHOCRATES).  Which means the unemployment rate is meaningless.  The only reason why it’s falling is that the BLS doesn’t count unemployed people who gave up looking for jobs that just aren’t there.  Oil production on private land may be up.  While overall oil consumption is down because of the Great Recession that just won’t end.  Which is helping to keep gas prices down.  Unemployed people just don’t have the money to buy gas.  So they don’t.  Greatly reducing the demand for gas.  Thus reducing gas prices and oil imports.  George W. Bush’s last deficit was $498.37 billion.  President Obama’s first deficit was $1,539.22 billion.  And it was over $1 trillion in 2010, 2011 and 2012.  It fell to $680 billion in 2013 thanks to the sequester.  But the deficit is larger now than when President Obama assumed office.  The only reduction in the deficit is a reduction in the amount he increased it.

Now, as president, I’m committed to making Washington work better, and rebuilding the trust of the people who sent us here.

Really?  You’re committed to rebuilding the trust of the people?  Mr. “If you like your health insurance you can keep your health insurance.  Period.”  Otherwise known as the lie of the year.  You’re going to rebuild the trust of the people?  Good luck with that.  What with your pants on fire and all.

Today, after four years of economic growth, corporate profits and stock prices have rarely been higher, and those at the top have never done better. But average wages have barely budged. Inequality has deepened. Upward mobility has stalled. The cold, hard fact is that even in the midst of recovery, too many Americans are working more than ever just to get by; let alone to get ahead. And too many still aren’t working at all.

Well, finally something Republicans can agree with the president about.  Yes, his economic policies have benefitted Wall Street.  While hurting Main Street.  Finally some bipartisan agreement.

So let’s make that decision easier for more companies. Both Democrats and Republicans have argued that our tax code is riddled with wasteful, complicated loopholes that punish businesses investing here, and reward companies that keep profits abroad. Let’s flip that equation. Let’s work together to close those loopholes, end those incentives to ship jobs overseas, and lower tax rates for businesses that create jobs right here at home. (Cheers, applause.)

There are only a few reasons why businesses export jobs.  And the big three are taxes, regulations and labor costs.  The Obama administration wants to raise taxes.  They’ve increased regulatory costs.  And they support costly union labor.  So everything they stand for encourages businesses to export jobs.

But — but I’ll act on my own to slash bureaucracy and streamline the permitting process for key projects, so we can get more construction workers on the job as fast as possible. (Applause.)

So how’s that approval for the Keystone XL pipeline coming along?  That thing you’ve been studying since 2010?  Which by the laws of arithmetic is approximately 4 years ago.  Is this slashing bureaucracy and streamlining the permitting process?  At this rate it would probably be quicker to elect a Republican president in 2016.  You know, someone who, when it comes to economic activity, walks it while the Democrats only talk it.

We also have the chance, right now, to beat other countries in the race for the next wave of high-tech manufacturing jobs. And my administration’s launched two hubs for high-tech manufacturing in Raleigh, North Carolina, and Youngstown, Ohio, where we’ve connected businesses to research universities that can help America lead the world in advanced technologies.

Universities are in the grant business.  They want as many grants as they can get to help bring money into the university.  And to do so they will study anything the government wants them to.  No matter how wasteful it is.  While some of the biggest high-tech companies started in garages.  Apple, Google, Hewlett Packard and Microsoft.  To name a few.  Yes, there is a lot of university-driven research.  But the big innovation is more entrepreneurial.  Created by people thinking up new stuff no one thought of yet.  Which is the last thing you want government involved in.  That same government that can’t build a website using 1990s technology.

Let’s do more to help the entrepreneurs and small business owners who create most new jobs in America. Over the past five years, my administration has made more loans to small business owners than any other. And when 98 percent of our exporters are small businesses, new trade partnerships with Europe and the Asia-Pacific will help them create even more jobs. We need to work together on tools like bipartisan trade promotion authority to protect our workers, protect our environment and open new markets to new goods stamped “Made in the USA.” (Applause.)

You want to help entrepreneurs and small business?  Get rid of Obamacare.  And slash tax rates.  This will provide incentive.  And allow them to reinvest more of their earnings to grow their business.  Allowing them to create those jobs.

Now, one of the biggest factors in bringing more jobs back is our commitment to American energy. The “all the above” energy strategy I announced a few years ago is working, and today America is closer to energy independence than we have been in decades. (Applause.)

‘All of the above’ as long as it isn’t coal, oil or nuclear.  But if it’s solar power and wind power they are committed to giving more tax dollars to their friends and bundlers in the green energy industry.

Meanwhile, my administration will keep working with the industry to sustain production and jobs growth while strengthening protection of our air, our water, our communities. And while we’re at it, I’ll use my authority to protect more of our pristine federal lands for future generations. (Applause.)

You can’t sustain production and jobs growth by strengthening protection of our air, water and pristine federal lands.  That’s just more regulatory costs.  And raising energy costs by not allowing any oil or natural gas production on those pristine federal lands.  Raising energy costs by restricting supply.  Which raises business costs.  In addition to those new regulatory costs.

Every four minutes another American home or business goes solar, every panel pounded into place by a worker whose job can’t be outsourced. Let’s continue that progress with a smarter tax policy that stops giving $4 billion a year to fossil fuel industries that don’t need it so we can invest more in fuels of the future that do. (Cheers, applause.)

That says it all.  Fossil fuels don’t need subsidies because their costs are affordable.  While solar (and wind power) are so costly that they are unaffordable.  Unless government heavily subsidizes them.

But the debate is settled. Climate change is a fact. (Applause.) And when our children’s children look us in the eye and ask if we did all we could to leave them a safer, more stable world, with new sources of energy, I want us to be able to say yes, we did. (Cheers, applause.)

There is no such thing as settled science.  Only science that has yet to be disproved.  Besides, once upon a time glaciers stretched down from the poles to near the equator.  And then receded back to where they are now.  All without any manmade carbon in the atmosphere to warm the planet.  As we were still simple hunter and gatherers then.  So if the glaciers moved more before there was manmade global warming they’ll move again regardless of what man is doing to warm the planet.

Finally, if we’re serious about economic growth, it is time to heed the call of business leaders, labor leaders, faith leaders, law enforcement — and fix our broken immigration system. (Cheers, applause.) Republicans and Democrats in the Senate have acted, and I know that members of both parties in the House want to do the same. Independent economists say immigration reform will grow our economy and shrink our deficits by almost $1 trillion in the next two decades. And for good reason: When people come here to fulfill their dreams — to study, invent, contribute to our culture — they make our country a more attractive place for businesses to locate and create jobs for everybody. So let’s get immigration reform done this year. (Cheers, applause.) Let’s get it done. It’s time.

Funny how that argument doesn’t apply to birth control and abortion.  The reason we need to “fix our broken immigration system.”  For if we were having babies at the rate when government created the welfare state we could pay for that welfare state today.  But thanks to the Sixties, birth control, abortion and feminism women stopped having babies.  Which is fine if a woman doesn’t want to.  But the progressives designed the welfare state based on them being baby machines.  Creating a greater number of taxpayers with each generation.  So more people pay into the welfare state than collect from it.  The way it must be for a Ponzi scheme to work.

That’s why I’ve been asking CEOs to give more long-term unemployed workers a fair shot at new jobs, a new chance to support their families. And in fact, this week many will come to the White House to make that commitment real.

When you raise the cost of labor (union labor, Obamacare, etc.) businesses tend to look at automating production instead of hiring that costly labor.  They may not be able to do anything about the higher regulatory costs but they can do something about higher labor costs.  Use more machines than people.  If you want CEOs to create new jobs stop making labor so costly.  And you can start with getting rid of Obamacare.

Of course, it’s not enough to train today’s workforce. We also have to prepare tomorrow’s workforce, by guaranteeing every child access to a world-class education. (Applause.)…

Five years ago we set out to change the odds for all our kids. We worked with lenders to reform student loans, and today more young people are earning college degrees than ever before. Race to the Top, with the help of governors from both parties, has helped states raise expectations and performance. Teachers and principals in schools from Tennessee to Washington, D.C., are making big strides in preparing students with the skills for the new economy — problem solving, critical thinking, science, technology, engineering, math.

Yes, more kids are going to college than ever before.  But they’re going there to have fun.  And to facilitate their fun many are getting easy, worthless degrees in the social sciences and humanities.  Costly degrees that universities sold them promising them future riches.  Enriching the university.  While impoverishing their graduates.  For a high-tech company has no use for these degrees.  Which is why a lot of these people end up in jobs they didn’t need that costly degree to do.  And our high-tech companies are using the visa program to get foreigners who have the skills they want.  Problem solving, critical thinking, science, technology, engineering and math.

It requires everything from more challenging curriculums and more demanding parents to better support for teachers and new ways to measure how well our kids think, not how well they can fill in a bubble on a test. But it is worth it — and it is working.

If you want kids to do better we need to champion marriage and family more.  And they should embrace religion a little more.  Instead of encouraging our young women to use birth control and abortion to avoid marriage and family.  And pulling every last vestige of religion from our lives.  Kids growing up in a household with a mother and a father who go to church do far better on average than kids growing up in a single-parent household and don’t go to church (see Strong families steeped in Conservative Values and Traditions do Well in America posted 1/11/2014 on PITHOCRATES).

Research shows that one of the best investments we can make in a child’s life is high-quality early education. (Applause.) Last year, I asked this Congress to help states make high-quality pre-K available to every 4-year-old. And as a parent as well as a president, I repeat that request tonight.

Actually, research doesn’t show that.  Yet they keep saying that.  For it’s like that line in the musical Evita, “Get them while they’re young, Evita.  Get them while they’re young.”  The sooner they can take them away from their parents the sooner they can start turning them into Democrat voters.  Such as teaching them to blame their parents for the manmade global warming that is killing the polar bears as they have no ice to rest on while eating their baby seals.

You know, today, women make up about half our workforce, but they still make 77 cents for every dollar a man earns. That is wrong, and in 2014, it’s an embarrassment.

Women deserve equal pay for equal work. (Cheers, applause.)

Actually, it’s closer to 91 cents (see The White House’s use of data on the gender wage gap by Glenn Kessler posted 6/5/2012 on The Washington Post).  And the small difference is not due to discrimination but personal choice.  When you look at aggregate wages women will make less than men.  Because more women are teachers (with 3 month off without pay) than men are.  Some women work fewer hours at work to spend more time with their children. While men tend to work more overtime.  Men also work the more dangerous and higher paying jobs.  And are more likely to belong to a union.  When you compare childless, single men and women with a college degree some women are actually earning more than men.  Figures don’t lie but liars figure.  And for the contortions the Obama administration did here The Washington Post’s The Fact Checker gave the president one Pinocchio.

Now, women hold a majority of lower-wage jobs, but they’re not the only ones stifled by stagnant wages. Americans understand that some people will earn more money than others, and we don’t resent those who, by virtue of their efforts, achieve incredible success. That’s what America’s all about. But Americans overwhelmingly agree that no one who works full-time should ever have to raise a family in poverty. (Applause.)

In the year since I asked this Congress to raise the minimum wage, five states have passed laws to raise theirs.

You’re not going to have a lot of upward mobility when you pay people more to remain in the jobs they hate.  All the talk about making college more affordable and bringing employers and community colleges together to help give people the skills they need to fill the jobs employers have is all for nothing if they just pay people more for doing an entry-level job.

Let’s do more to help Americans save for retirement. Today most workers don’t have a pension. A Social Security check often isn’t enough on its own. And while the stock market has doubled over the last five years, that doesn’t help folks who don’t have 401(k)s. That’s why tomorrow I will direct the Treasury to create a new way for working Americans to start their own retirement savings: MyRA. It’s a — it’s a new savings bond that encourages folks to build a nest egg.

Once upon a time people opened a savings account at their local bank and they saved to buy a house.  And they saved for their retirement.  That’s how people saved when they didn’t have a pension or a 401(k).  They can’t do that today because of the Federal Reserve destroying the banking industry by keeping interest rates at zero.  If the Fed stopped printing money and let investment capital come from our savings like they did before the Keynesians gave us the Federal Reserve people would be saving like we once did.  And we’d stop having Great Depressions, stagflation and Great Recessions.  Created by their prolonging the growth side of the business cycle.  Which raises prices higher than they normally would go.  Making the contraction side of the business cycle that much more painful.  As those prices have a much longer way to fall than they normally would.  Thanks to the Fed’s meddling with interest rates.

MyRA guarantees a decent return with no risk of losing what you put in. And if this Congress wants to help, work with me to fix an upside-down tax code that gives big tax breaks to help the wealthy save, but does little or nothing for middle-class Americans, offer every American access to an automatic IRA on the job, so they can save at work just like everybody in this chamber can.

You know why they want these MyRAs?  Because they can’t stand people saving money.  They love Social Security.  Because they can borrow from the Social Security Trust Fund.  Which is what they will do with these MyRAs.  They will take this money and spend it.  Filling the MyRA Trust Fund with a bunch of IOUs.  Just like they do with the Social Security Trust Fund.  And then provide a retirement benefit like Social Security.  That is too small to live on.  Whereas if we saved the money ourselves our retirement nest-egg will be much larger.  And it will provide for our retirement.  Unlike Social Security.

And since the most important investment many families make is their home, send me legislation that protects taxpayers from footing the bill for a housing crisis ever again, and keeps the dream of homeownership alive for future generations. (Applause.)

It was Bill Clinton that set the stage for the subprime mortgage crisis with his Policy Statement on Discrimination in Lending (see Bill Clinton created the subprime mortgage crisis with his Policy Statement on Discrimination in Lending posted 11/6/2011 on PITHOCRATES).  Using the heavy hand of government to get lenders to qualify the unqualified.  Then the Fed’s artificially low interest rates were the bait for the trap.  Enticing people to borrow huge sums of money because those interest rates were just too good to pass up.  Even if they weren’t planning to buy a house to begin with. The subprime mortgage crisis and the resulting Great Recession were government made.  If we want to prevent the taxpayers from footing the bill for another housing crisis we need to get the Keynesians out of government.

Already, because of the Affordable Care Act, more than 3 million Americans under age 26 have gained coverage under their parents’ plans. (Applause.)

More than 9 million Americans have signed up for private health insurance or Medicaid coverage — 9 million. (Applause.)

The Washington Post gave this lie three Pinocchios (see Warning: Ignore claims that 3.9 million people signed up for Medicaid because of Obamacare by Glenn Kessler posted 1/16/2014 on The Washington Post).  For they’re counting some 3.9 million who would have signed up anyway for Medicaid regardless of the Affordable Care Act.  Also, the government was counting people who put a health care plan into their shopping cart as if they signed up for it.  Which many couldn’t.  As they haven’t programmed the back end of the health care website yet to actually accept payment or to pass that information on to the insurers.

And here’s another number: zero. Because of this law, no American, none, zero, can ever again be dropped or denied coverage for a pre-existing condition like asthma or back pain or cancer. (Cheers, applause.) No woman can ever be charged more just because she’s a woman. (Cheers, applause.) And we did all this while adding years to Medicare’s finances, keeping Medicare premiums flat and lowering prescription costs for millions of seniors.

That’s right.  Women with reproductive systems that men don’t have won’t pay more for their health insurance than men pay for theirs.  How can they do that?  Simple.  They just are charging men more.  To cover the cost of a reproductive system they don’t have.

Citizenship means standing up for the lives that gun violence steals from us each day. I have seen the courage of parents, students, pastors, and police officers all over this country who say “we are not afraid,” and I intend to keep trying, with or without Congress, to help stop more tragedies from visiting innocent Americans in our movie theaters and our shopping malls, or schools like Sandy Hook. (Applause.)

If you take away guns from law-abiding gun owners that won’t keep dangerous people with mental health issues that want to harm people out of our movie theaters, our shopping malls or schools like Sandy Hook.  For there are other ways to harm people.  Just look at the Boston Marathon bombers.  The people he’s talking about not only had mental health issues but they were also smart.  Many were even college students.  Who probably could think of other ways to hurt people.  And you just can’t take away everything they might use to harm people.  But you can place these people somewhere where they can’t harm anyone.

You see, in a world of complex threats, our security, our leadership depends on all elements of our power — including strong and principled diplomacy. American diplomacy has rallied more than 50 countries to prevent nuclear materials from falling into the wrong hands, and allowed us to reduce our own reliance on Cold War stockpiles.

Since President Obama assumed office he did nothing to support the Green Revolution in Iran.  Which kept the hard-line Islamists in power there.  He gave Egypt to the Muslim Brotherhood by telling Hosni Mubarak that he had to go.  Removing the stable anchor of the Middle East.  And moved Egypt closer to Iran.  (The Egyptian people eventually rose up to overthrow the oppressive Muslim Brotherhood).  He went to war in Libya and helped to overthrow Colonel Muammar Qaddafi.  Who at the time was a quasi ally in the War on Terror.  After the Iraq invasion frightened him into believing he may be next.  President Obama was thanked for his Libyan war by al Qaeda with 4 dead Americans in Benghazi on the anniversary of 9/11.  He waited too long to act in the Syrian civil war.  Which only brought al Qaeda into the conflict.  He failed to attain a status of forces agreement in Iraq.  So he pulled all U.S. forces out of Iraq which has only invited al Qaeda in.  And it looks like this will be repeated in Afghanistan.  He blamed George W. Bush’s wars as recruitment tools for al Qaeda.  While his extensive drone use is doing the same thing.  Especially in Yemen.  The hotbed of al-Qaeda in the Arabian Peninsula.  All that his diplomacy and leadership has done was to make the world a more dangerous place.

American diplomacy, backed by the threat of force, is why Syria’s chemical weapons are being eliminated. (Applause.) And we will continue to work with the international community to usher in the future the Syrian people deserve — a future free of dictatorship, terror and fear.

His diplomacy with Bashar al-Assad in Syria only gave his oppressive regime legitimacy in the civil war he was raging against his people.  Making it easier for Assad to kill Syrians with conventional arms while he gives up a token amount of his chemical weapons.  While also making Russia who brokered the deal the dominate player in the region.

And it is American diplomacy, backed by pressure, that has halted the progress of Iran’s nuclear program — and rolled back parts of that program — for the very first time in a decade. As we gather here tonight, Iran has begun to eliminate its stockpile of higher levels of enriched uranium.

It’s not installing advanced centrifuges. Unprecedented inspections help the world verify every day that Iran is not building a bomb. And with our allies and partners, we’re engaged in negotiations to see if we can peacefully achieve a goal we all share: preventing Iran from obtaining a nuclear weapon. (Applause.)

All Iran is doing is pausing their program.  And chemically altering some of their enriched uranium to meet the requirements of this diplomatic deal.  But this chemical process is reversible.  And they will reverse it once they get what they want.  This deal makes the world no safer.  If anything it makes it more dangerous.  For it does not diminish the Iranian nuclear program in the least.  But gives them more time to work on it as they prop up their regime with much needed supplies thanks to a relaxation of the sanctions against them.

These negotiations will be difficult; they may not succeed. We are clear-eyed about Iran’s support for terrorist organizations like Hezbollah, which threaten our allies; and we’re clear about the mistrust between our nations, mistrust that cannot be wished away. But these negotiations don’t rely on trust; any long-term deal we agree to must be based on verifiable action that convinces us and the international community that Iran is not building a nuclear bomb. If John F. Kennedy and Ronald Reagan could negotiate with the Soviet Union, then surely a strong and confident America can negotiate with less powerful adversaries today. (Applause.)

The sanctions that we put in place helped make this opportunity possible. But let me be clear: if this Congress sends me a new sanctions bill now that threatens to derail these talks, I will veto it. (Applause.) For the sake of our national security, we must give diplomacy a chance to succeed.

The Soviet Union never attacked U.S. soil.  And there was a reason they didn’t.  They were rational.  And knew they would lose a great deal in a war with America.  Especially a nuclear one.  Which is why they never used their nuclear weapons.  But Iran giving a nuclear weapon to a shadowy group that is not a state?  With little to lose in using a nuclear weapon?  If it’s not a nuclear missile there will be no way in knowing where the nuclear bomb came from.  We can have our suspicions that Iran made it and gave it to someone.  But do we nuke Iran over that?  What if there are more nukes in the hands of al Qaeda, Hezbollah, al-Qaeda in the Arabian Peninsula, etc.?  You could nuke Iran back to the Stone Age but it won’t stop those others being used.  The president insists this will not happen as Iran signed an agreement.  The only problem with that is the Iranians are liars.  And they call the United States the Great Satan.   These two facts suggest that replacing those sanctions with a promise not to build nuclear bombs was probably not a wise trade.

But for more than two hundred years, we have put those things aside and placed our collective shoulder to the wheel of progress: to create and build and expand the possibilities of individual achievement; to free other nations from tyranny and fear; to promote justice and fairness and equality under the law, so that the words set to paper by our founders are made real for every citizen.

Use our collective shoulder to expand individual achievement?  The president believes in the former more than the latter.  He didn’t help the Iranians get free from tyranny when he had the chance.  And he turned the Egyptian people over to tyranny.  The Muslim Brotherhood.  Who were oppressing women and Christians.  Fairness and equality under the law?  Ask those Tea Party groups who were targeted by the IRS about fairness and equality under the law.  The Constitution?  That document of negative rights?  The left hates it.  And insists it’s a living document that can evolve over time to suit the needs of an expanding government.  So they can do exactly what the Founding Fathers wrote the Constitution to prevent from happening.

The Left endorses Unsound Policy Proposals with no Basis in Reality to improve their Chances of Winning Elections

The country is more conservative than liberal (see Liberal Self-Identification Edges Up to New High in 2013 by Jeffrey M. Jones posted 1/10/2014 on Gallup).  Which is why liberals want state-funded pre-K to start indoctrinating our children as soon as possible.  To get them away from their parents so they can begin the process of turning them into Democrat voters.  It’s why kids are getting worthless social science and humanities degrees.  To further indoctrinate them.  Because their views are minority views.  So they need to play loose with the facts.  And lie.  Which is easier to do with indoctrinated kids than educated adults.  You’ll even hear Democrats talk about lowering the voting age.  To get a few more years of voting out of these kids before they grow old and wise.  And begin voting conservative.  So they do what they can to dumb down education.  Lie.  Cheat.  And buy as many votes as they can by giving away free stuff.  And the thing they really want to give away is citizenship for illegal aliens.  Who they are sure will be forever grateful.  And show it by voting Democrat.

This explains the enthusiastic applause for unsound policy proposals that have no basis in reality.  For the left is not interested in improving the lives of Americans.  They just want to improve their chances of winning elections.

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Nanny States emasculate the People and Screw and Frighten Retirees

Posted by PITHOCRATES - December 22nd, 2013

Week in Review

This world isn’t what it used to be.  Everywhere people are looking for others to pay their way.  Or are so emasculated that living frightens them so that they run to government to parent them.  Forever.  What happened to those rugged men that entered the wilderness and built civilizations?  Who asked not for help.  All they wanted was to be left the hell alone.  Because they were men.  Rugged and fiercely independent.  Who filled their speech with obscenities whenever they talked about any form of government or nobility.  Because the government and noble classes were nothing but freeloaders looking for the good life they could force others to give them.

Today people have been so brainwashed by their government that they are incapable of doing anything without government helping them.  It’s a wonder that they can wipe their bottoms after a poop these days.  The growth of the nanny state has brought advanced economies to their knees around the world as the costs of their nanny states push them to the brink of bankruptcy.  And still the privileged/frightened people ask for more (see Business groups oppose ‘made in Ontario’ pension plan by Dana Flavelle Economy and Madhavi Acharya-Tom Yew posted 12/17/2013 on The Star).

Ontario’s plans to introduce its own mandatory pension plan could put the province at a competitive disadvantage, business groups warn

“It will add a huge competitive disadvantage to the businesses in the provinces that opt to go down that road,” said Dan Kelly, president of Canadian Federation of Independent Business.

But labour groups and retirees are applauding the province’s move to fill the void left by Ottawa’s decision not to enhance the Canada Pension Plan at this time…

Federal finance minister Jim Flaherty and junior minister of state for finance Kevin Sorenson rejected growing calls to expand CPP [Canada Pension Plan]contributions and benefits, saying now is not the right time to hit employers with higher payroll taxes…

Business groups said they welcomed Ottawa’s decision, noting CPP contributions are one of the two biggest payroll taxes they pay. The other is employment insurance premiums…

Few dispute that Canada’s pension system is no longer adequate to meet the needs of an aging population. People are living longer and saving less, while fewer private-sector employers offer pension coverage at work, a trend that plagues many industrialized nations.

Why are people saving less?  Two reasons.  First, the more the government taxes away the less they can save.  Second, with the government making promises they can’t keep (we will take care of you in your retirement so instead of saving your money spend it) why should anyone save anything for their own retirement?

Of course labor groups (the privileged) and retirees (the frightened) applaud this.  Labor wants to give their members a better life than those outside their union.  And retirees are living so long into retirement they’re living beyond their contributions into the CPP.  And are all for a little generational theft to make up the shortfall.

The defined-benefit pension is a relic of another era.  It doesn’t work anymore.  If we would have kept having babies like we once did the Ponzi scheme may have kept working.  But we didn’t.  So the Ponzi scheme is collapsing.  As they all eventually do.  The rest of the private sector has gone to 401(k)s and other such retirement vehicles.  Where we put OUR money away for OUR retirement.  Where the government can’t get their dirty little fingers on it.  This is the future of retirement savings.  Because unlike defined-benefit pensions they are sustainable.

All government pension plans need to make such a change.  Because once they do the age of the population will not matter.  Because you are saving YOUR money for YOUR retirement.  Those retired and those within a decade or so of retirement need to be protected from the folly of government in their retirement.  But younger generations coming up need to provide for their own retirement.  Because we can’t keep raising taxes.  For all that does is send jobs from the First World to the Third World.  Good for the Third World.  But bad for the First World.  And retirees.

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Tariffs

Posted by PITHOCRATES - September 9th, 2013

Economics 101

The Proponents of Tariffs say they will Protect Infant Industries and Domestic Jobs

Tariffs.  What are they?  And what are they for?  A tariff is a tax.  Or a duty.  The government applies tariffs to imported goods.  Making them more expensive.  So people have to spend more money for them.  Leaving them less money to spend on other things.  Which seems counterintuitive to trying to increase economic activity.  Increasing prices the consumers pay, leaving them less money to buy other stuff.  So why do they do it?

The argument for tariffs is typically to protect ‘infant’ industries.  To give them a chance to get off the ground and establish themselves.  So they can later compete with this more developed and less costly foreign competition.  Which they couldn’t do if those foreign competitors can sell goods just as good if not better at lower prices.

Another argument is that tariffs protect domestic jobs.  A lot of imported goods are less costly than the same domestically produced goods.  Because of less costly labor in these other countries.  Often developing economies.  Unlike the developed economies who pay their people more.  And give them more benefits.  All paid for with the higher prices the people pay for their goods.  Tariffs raise the prices of foreign goods so they are not less costly than the domestically produced goods.  To get people to buy domestic goods.  Thereby saving domestic jobs.

Americans have to Pay about $1.25 more for a Bag of Sugar than the Rest of the World

These arguments make tariffs sound noble and good.  For they’re helping the little guy.  And protecting middle class jobs from cheap labor in foreign countries.  But they also hurt the little guy.  And poor families.  Because tariffs raise the price of the things they have to buy.  For example, tariffs on sugar imports raise the price Americans pay for sugar higher than people can buy sugar outside of the United States.  So the sugar they buy, and anything that contains sugar as an ingredient that they buy, is higher than it would be if the sugar tariffs weren’t there.

The US population in 2012 was 313,914,040.  Let’s assume the adult population is approximately 250 million.  And that half of them buy sugar.  How many sugar producers are there in the United States?  Far, far fewer than 125 million.  The Washington Post noted in 2007 that there were only about 6,000 sugar farmers.  About 0.002% of the population.  While the sugar buyers are closer to 40% of the population.  Or more if you include the things we buy that have sugar in them.  The numbers are approximate but the point is clear.  The people helped by tariffs are an infinitesimally small number while the people hurt by tariffs are a much, much larger number.

Let’s crunch some numbers.  While people outside of the United States can buy a bag a sugar for $1 Americans have to pay $2.25.  Or $1.25 more.  To protect American jobs in the sugar industry.  The 6,000 sugar farmers.  Let’s triple this number for the corn farmers (for high fructose corn syrup) and the sugar companies.  Rounding it out to an even 20,000 jobs that sugar tariffs protect.  If half of all adults buy a bag of sugar that’s $156 million pulled out of the economy that goes to, for lack of a better term, Big Sugar.  Let’s say these adults buy two bags a year.  Bringing the transfer from the 125 million (sugar consumers) to the 20,000 (Big Sugar) to $312.5 million.  Let’s double that number to include everything we buy that includes sugar as an ingredient.  And then double that number to account for all the sugar and corn subsidies.  Bringing the total annual wealth transfer from consumers to Big Sugar to approximately $1.25 billion.

Tariffs transfer Wealth from the Many to the Few and Reduce Economic Activity

That’s an enormous amount of wealth transferred from less rich people to richer people.  From consumers to Big Sugar.  But is it accurate?  Well, according to an article published in the Washington Post, yes.  The article states:

The Government Accountability Office has estimated that the sugar program costs consumers and food processors between $1 billion and $2 billion annually in higher prices for sugar and a vast array of products that contain it. Meanwhile, the new sugar subsidy would cost taxpayers tens of millions of dollars a year, according to economists and U.S. officials.

So our crude calculation may be on the light side.  This is a lot of money taken out of the pockets of hundreds of millions of consumers to protect 20,000 or so well-paying jobs.  Nearly half of the US population supporting less than 0.02% of the population.  And those tariffs paid that 0.02% very well.  Because Big Sugar is very profitable.  And can pay their people very well.  As they have tariffs to increase their selling prices and subsidies to lower their costs.  Which greatly fattens the bottom line.

In the United States the price of sugar is so high that businesses have turned to high fructose corn syrup for their sweetener.  Which our tax dollars also subsidize.  Making it a very profitable industry.  And as an added bonus for Big Sugar, some studies have indicated that high fructose corn syrup doesn’t satiate your appetite like regular sugar.  Causing us to overeat.  Which lets the soda pop industry sell more soda pop.  The (sweetened) food industry sell more food.  And, of course, Big Sugar sell more sweetener.  Making them richer.  And the people poorer.  As well as obese.  All of this to protect a very few jobs in some very old industries.  Transferring wealth from the many to the few.  And reducing economic activity.  Pretty much the exact opposite of what the proponents of tariffs say tariffs will do.  But what they in fact do.  Help the few.  At the expense of the many.

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Communism, Karl Marx, Marxism, Surplus Labor and the Labor theory of Value

Posted by PITHOCRATES - August 20th, 2013

History 101

(Originally published December 13, 2011)

Some would call Putting Profits before People Heaven if they had Lived in the Caring Hell of Communism

No ideology killed more people than communism.  In total numbers.  Such as Joseph Stalin in the Soviet Union.  Or Mao Tse-tung in the People’s Republic of China.  Or as a percentage of population.  Where Pol Pot’s Cambodian genocide holds this honor alone.  These communist leaders killed their people directly for political purposes.  Or starved them to death because of agrarian reforms that produced famines.  All in the name of freeing their people from the horrors of capitalism.

Heaven and hell.  That’s how a defector who escaped communism and made it to capitalism would describe what it’s like to live under each system.  Capitalism would be heaven.  And communism would be hell.  The problem with communism was that it didn’t work.  Economically.  People lived in want of the basic staples of life.  And often went hungry.  When they didn’t starve to death by yet another famine.  And if they complained or spoke out against the system they risked torture.  Or they simply just disappeared.  Banished to a work camp.  A reeducation camp.  Or killed.  So it’s no surprise that people trapped in these countries tried to escape.  Which is why communist states were oppressive police states.  To prevent people from escaping their horrible lives.

And yet to this day some people still hold up communism as the ideal socioeconomic system.  The one that cares about the people.  The one that puts people before profits.  Unlike capitalism.  Which puts profits before people.  Of course some would call putting profits before people heaven.  Especially if they had lived in the caring hell of communism.

Communism as an Economic System is an Utter and Abject Failure

Those who champion communism don’t blame the ideology.  They say it’s the people.  The few who use the ideology for personal gain.  And by few they mean basically everyone.  But if everyone is doing it it’s not the people.  It’s the ideology.  And it goes back to its utter and abject failure as an economic system.

Communism goes back to Karl Marx.  The guy that coauthored the Communist Manifesto in 1848.  And from which we get the terms Marxism.  And Marxist.  To describe varying forms of communism.  And communists.  He’s the guy who said that capitalism exploited the working man.  Those with money (capital) who owned factories, the industrial bourgeoisie, charged more for their goods than they paid their workers to make those goods.  Because Marx believed the value of any good was the labor that made it (the labor theory of value), this excess value (profit) was a labor surplus.  And belonged to the worker.  So he encouraged class conflict.  For the proletariat (the working class) to rise up and take over the means of production from those who owned it.  These middle class capitalists.  The industrial bourgeoisie.  And establish a dictatorship of the proletariat.  So the bourgeois capitalist pig-dogs couldn’t exploit the proletariat any more.  And everyone would then live happily ever after.

But no one ever did.  Like in capitalism.  Where happiness abounds.  Because, in capitalism, the market determines prices.  Not some bureaucrat counting up labor inputs through the manufacturing process.  From the mining of resources.  To the final assembly.  Which can make things very expensive.  And, worse, unwanted by the people.  Because when the market sets the price and assigns value, the market tells people what to make.  Normally when something is a hot seller it tells manufacturers to make more of it.  To cash in on those high prices.  So they do.  And people tend to buy this surge in products.  But when the market isn’t setting the price and assigning value, the market can’t tell people what to make.  So a bureaucrat must.  Which is what happens in communism.  Bureaucrats decide everything.  From what to make.  To the allocation of resources.  To the selling price.  And the things they decide to make are rarely what the people want.  Explaining why stores in communist countries were full of stuff no one wanted to buy.  And why people had to stand hours in line to get the things they did.  Or paid more on the black market.  Which is why communism as an economic system is an utter and abject failure.  And why people wanted to escape it.  Their only obstacle being that brutal and oppressive police state.  Which was necessary because if everyone left that wanted to the communist leaders wouldn’t have anyone to provide for them.

There are no Such Things as Market Failures under Capitalism

Communism was one of the worst man-made tragedies to ever befall man.  Karl Marx was wrong.  And his asinine theories killed tens of millions of people.  People enjoy life and prosper under capitalism.  Under communism they set records for genocide.  Why?  Because the communist economic model is an utter and abject failure.

The struggle between communism and capitalism was an economic one.  And pitted the market against bureaucrats who thought they were smarter than the market.  But it turned out they weren’t.  Not by a long shot.  And despite this history people are constantly talking about market failures and the evils of capitalism.  Much like Joseph Stalin, Mao Tse-tung and Pol Pot.  But for them it was never about the economics.  It was about the power.  Much like it is today.  Because there are no such things as market failures under capitalism.  It’s the bureaucrats who fail.  Not the markets.  At least, based on all recorded history.

Markets fail only when they aren’t free.  They fail when bureaucrats insert themselves into the economic process.  Via regulatory policy.  Or high taxes.  When they try to shape market forces to a political end.  And when they do it is capitalism no more.  It’s crony capitalism.  Or worse.

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McDonald’s 2012 Annual Report

Posted by PITHOCRATES - August 6th, 2013

History 101

The Benefit of a McDonald’s Franchise is getting the Benefit of their Years of Building their Brand

Recently a late-night comedy show attacked McDonald’s for being greedy.  Because they don’t pay their minimum wage workers a living wage.  Because what were once entry level jobs are now the primary support for some families.  And why have entry level jobs come to support families?  Because the anti-business policies of the current administration have destroyed better-paying jobs.  But they don’t attack that on late-night television.  They attack a company actually providing jobs in a jobless economy.

Today McDonald’s is huge.  You can find them pretty much anywhere in the world.  Which can be a welcome site for a weary traveler.  For they know they can walk into a McDonald’s wherever they are and have the comfort of a meal exactly like that at home.  Which is pretty amazing if you think about it.  And why McDonald’s is so successful.  The sight of those Golden Arches can attract a foreigner in a strange land or a construction worker on a new project in a distant city.  They know exactly what they can get at that McDonald’s.  What it will taste like.  And what it will cost.  Even if they’ve never been in that McDonald’s before.

This is because McDonald’s has very successfully built their brand.  Which is one of those intangible things.  It has great value.  But you can’t physically touch it.  Those who own a McDonald’s franchise can enjoy a thriving business.  From day one.  Without doing any marketing to get people to walk into their restaurant.  They don’t have to.  Because McDonald’s has already done it.  And continues to do it.  This is the benefit of the franchise.  You get the benefit of all those years of hard work McDonald’s did to build their brand by simply paying a franchise fee (see Restaurants and Franchises posted 8/5/2013 on Pithocrates).  It’s not cheap.   But it’s such a fair deal for both franchiser and franchisee that McDonald’s had 27,882 franchised stores in 2012 (see McDonald’s 2012 Annual Report, page 11).

Owning a McDonald’s Franchise allows you to own a Restaurant that has been Successfully in Business for 72 Years

In addition to the intangible value of the brand the franchise fee also includes rent.  For McDonald’s “owns the land and building or secures long-term leases” for the franchisee’s store (see McDonald’s 2012 Annual Report, page 11).  While the franchise needs to foot the bill for the “equipment, signs, seating and décor.”  This makes sure all stores are modern and up to date and uniform.  Helping to maintain that comfortable familiarity for the customers.  While splitting the capital costs between the franchisee and franchiser.  So both parties have a major investment in the business.  And each shares in the profits of the business.  Perhaps the best of the deal for the franchisee is getting a mentor.  And a detailed operating manual telling them everything they need to know and do.

Owning a McDonald’s franchise is costly.  But you get to step into a restaurant that has been successfully in business for 72 years.  Give or take.  Considering that half of all restaurants fail within the first five years of business this is a HUGE benefit for the franchisee.  And something well worth the franchise fee.  As evidenced by 27,882 franchised stores in 2012.  So what is that franchise fee?  And how much money does the franchisee get to keep after paying the franchise fee?

Well, if you do a little number crunching with the financials included in the 2012 annual report you can get an approximate number.  McDonald’s also has stores they own and operate.  In 2012 they had 6,598 company-owned stores.  The average per store revenue was $1,358,594 (calculated by dividing the total revenue from the company-owned stores by the number of company-owned stores).  A similar calculation gives an approximate $667,205 franchise fee per franchised store.  Subtracting the typical franchisee fee from the typical store revenue (assuming all stores have the same average revenue as the company-owned stores) gives the franchisee an annual income of $691,389.  From this income the franchisee has to pay for food, labor and overhead.  And whatever is left over is profit.

High School Kids and College Students work at McDonald’s because they need no prior Restaurant Experience

The rule of thumb in restaurants is that costs are broken down into thirds.  One third is food cost.  One third is labor cost.  And one third is overhead and profit.  So if we divide that $691,389 by 3 we get an annual food cost per franchised store of $230,463.  Ditto for labor.  And overhead (gas, electric, water, insurances, taxes, licenses, fees, waste disposal, light bulbs, toilet paper, soap, garbage bags, etc.) and profit.  Let’s look at the labor cost more closely.  To see if McDonald’s is greedy when it comes to paying their employees.

The benefit of owning a franchise is that it comes with very explicit instructions.  A McDonald’s distributor delivers prepared food ready for the grill and fryer.  As delicious as it is, though, it doesn’t take a highly skilled chef to prepare it.  As the franchisee operating manual has it down to a science.  Which is why high school kids and college students work at McDonald’s.  They need no prior restaurant experience as it is an entry level job.  Typically their first job.  Where they learn what it’s like entering the workforce.  The importance of being on time.  Following instructions.  Being responsible.  Skills that they will use in later jobs.  Which most do.  As there is a high turnover of employees at McDonald’s as there is for all fast food.  Because these are entry level jobs for unskilled workers.  Who learn the skills they need on the job.  So let’s assume a restaurant that is open 24 hours a day, 7 days a week.  Assuming an hourly rate of $8.50 and an overhead of 40% for direct labor costs (workers’ compensation insurance, unemployment taxes, health insurance, uniforms, training, etc.) the average hourly labor cost comes to $11.90.  Dividing the labor cost of $230,463 by this hourly cost gives us 15,758 annual labor hours.  Or about 53.06 hours per day.  Or 17.69 hours per 8-hour shift.  Giving us an average of 2.21 workers per 8-hour shift.

During the breakfast and lunch rush a typical McDonald’s may have between 5-8 people working.  With fewer working in the evening.  And a skeleton crew over night working the drive-thru.  So the labor fluctuates during the day to correspond to the amount of business.  Which is why there are a lot of part-time workers at McDonald’s.  Ideal for high school and college kids.  In addition the owner typically works during those busy periods to help with the rush.  And works on paperwork during the slower times.  Putting in about 12 hours a day.  If you assume an overhead rate of 18% and multiply that to the franchisee annual income of $691,389 we get an overhead expense of $124,450.  Subtracting that from the $230,463 (overhead & profit) leaves an annual owner income of $106,013.  Or, based on a work week of 84 hours (12 hours a day X 7 days a week), the owner earns about $24.27 an hour.  A rate a lot of people can earn working for someone else without the headaches of owning a business.

That late-night comedy show attacked McDonald’s for being greedy.  Saying they should increase their pay rate to a living rate.  Like picketers were asking for.  $15/hour.  A labor cost increase of 82.6%.  Or an additional $190,382 each year.  Which would bring the franchisee’s annual income from $106,013 to an annual loss of $84,369.  So are these McDonald’s franchisees greedy because they refuse to pay a living wage?  No.  They simply can’t afford to pay more than the minimum wage for these minimum wage jobs.  Unless they can get people to spend $6-$7 for a Big Mac.  They are delicious.  But are they $6-$7 delicious?  And can a low-income family afford to take the family to McDonald’s when they are charging $6-$7 per burger?  Probably not.  No.  McDonald’s is just fine.  What we need to do is to un-do the anti-business policies of this administration that is killing those higher-paying jobs.  And forcing the primary earner in some families to work a minimum wage job.  Because that’s all that is available in this jobless economy.

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Paid Labor vs. Slave Labor

Posted by PITHOCRATES - July 15th, 2013

Economics 101

Paid-Laborers are Rented as Needed while Slave-Laborers are Owned even when not Needed

There is a common misconception that slave labor was free labor.  The argument goes that the United States got rich because of all their free slave labor.  They’ll say this despite knowing of the immense suffering of African slaves on the slave ships.  Who came to the New World where slave traders auctioned them off.  This was the slave trade.  The key word in this is ‘trade’.  African slave traders sold them to European slave traders.  Who auctioned them off in New World slave markets.  To feed a labor-hungry market.

People bought and sold slaves.  And anything you buy and sell is not free.  So slave labor wasn’t free.  It was a capital cost.  Let’s explain this by comparing leasing and owning.  Businesses can buy buildings.  Or lease them.  If they buy them they own them.  And are responsible for them.  They add a large asset on their balance sheet that they depreciate.  And add new debt that they must service (making premium and/or interest payments).  They also must pay expenses like taxes, insurance, maintenance, supplies, utilities, etc.  Things owners are responsible for.  When they lease a building, though, they don’t add an asset to depreciate.  And they don’t pay any expenses other than a lease payment.  The owner, the lessor, pays all other expenses.  When you lease you pay only for what you use.  When you buy you pay for what you use now.  And what you will use for years to come.  We can make a similar comparison between paid-labor and slave-labor.

Paid vs Slave Labor 1 of 3

For this exercise let’s take a factory today with 125 employees.  We’ll look at the costs of these laborers as paid-laborers versus slave-laborers.  We assume that the total labor cost for everything but health care/insurance is $65,000 per paid-laborer.  And an annual health care expense of $5,000.  Bringing the total annual labor and health care/insurance costs for 125 paid-laborers to $8,750,000.  For the slave laborers we assume 47 working years (from age 18 to 65).  But we don’t multiple 47 years by $65,000.  Because if we buy this labor there are a lot of other costs that we must pay.  Slave traders understand this and discount this price by 50%.  Or $32,500 annually for 47 years.  Which comes to $1,527,500 per slave-laborer.  Bringing the annual total cost for all 125 slave-laborers to $4,062,500.  And, finally, because they own these laborers they don’t have to offer premium health insurance to attract and keep employees.  So we assume health care/insurance expense is only half of what it is for paid-laborers.

Slave-Labor Overhead included Food, Housing, Clothing and Interest on Debt that Financed Slave-Laborers

If we stop here we can see, though not free, slave-laborers are a bargain compared to paid-laborers.  But if they own these people they have to take care of these people.  They have to provide a place for them to live.  They have to feed them.  Clothe them.  As well as pay interest on the money they borrowed to buy them.  And the building to house them.  For if they are not fed and protected from the elements they may not be able to work.

Paid vs Slave Labor 2 of 3 R1

A slave-owner will try to keep these overhead costs as low as possible.  So they won’t be feeding them steaks.  They will feed them something inexpensive that has a high caloric content.  So a little of it can feed a lot of people.  In our exercise we assumed a $1.25 per meal, three meals daily, seven days a week, 52 weeks a year.  For a total of $170,625 annually.  We assumed a $500,000 building to house 125 slave-laborers and their families.  The depreciation expense (over 40 years), taxes, insurance, supplies (soap, toilet paper, laundry detergent, etc.) and utilities come to $24,100 annually.  For clothing we assume a new pair of boots every 5 years.  And 7 inexpensive shirts, pants, tee shirts, underwear and socks each year.  Coming to $10,094 annually.

Then comes one of the largest expense.  The interest on the money borrowed to buy these slave-laborers.  Here we assume they own half of them free and clear.  Leaving $95,468,750 of debt on the book for these slave-laborers.  At a 4.25% annual interest rate the interest expense comes to $4,057,422.  We also assume half of the debt for the housing still on the books.  At a 4.25% annual interest rate the interest expense comes to $10,625.

George Washington was Greatly Bothered by the Contradiction of the Declaration of Independence and American Slavery

These overhead expenses bring the cost of slave-laborers nearly to the cost of paid-laborers.  Almost making it a wash.  With all the other expenses of owning slaves you’d think people would just assume to hire paid-laborers.  Pay them for their workday.  Their health insurance.  And nothing more.  Letting them go home after work to their home.  Where they can take care of their own families.  Provide their own food.  Housing.  And clothing.  Which they pay for out of their paycheck.  Of course, this wasn’t quite possible in the New World.  There weren’t enough Europeans living there to hire.  And the Native Americans in North, Central and South America were more interested in getting rid of these Europeans than working for them.  Which left only African slaves to exploit the natural resources of the New World.  But that slave-labor could grow very costly over time.  Because when you own people you own families.  Including children and elderly adults who can’t work.  By the time of our Founding this was often the case as some slave owners owned generations of slave families.

Paid vs Slave Labor 3 of 3 R1

In our exercise we assume an equal number of men and women working in the factory.  Assumed these men and women married.  And half of these couples had on average 3 young children.  We’ve also assumed the current working generation is a second generation.  So their surviving parents live with them.  We assumed half of all parents are surviving.  These children and the surviving parents cannot work.  But they still must eat.  And require medical attention.  Using the costs for the workers these non-workers add another $845,469 to the annual labor cost.  Brining the cost of the slave-laborers greater than the cost of the paid-laborers.

George Washington was very conscious of history.  Everything he said or did was with an eye to future generations.  And their history books.  One of the things that greatly bothered him was the contradiction of the Declaration of Independence declaring all men equal while the institution of slavery existed.  But to form a new nation they needed the southern states.  And they wouldn’t join without their slaves.  So they tabled the subject for 20 years.  Sure by then that the institution would resolve itself and go away.  Washington believed this because he had many generations of slaves on his plantation.  And desperately wanted to sell them and replace them with paid-laborers.  Because he was feeding so many slaves that they were eating his profits.  But people wanted to buy only those who could work.  Not the children.  Or the elderly.  Unable to break up these families he did what he thought was the honorable thing.  And kept using slaves.  To keep these families together.  Making less money than he could.  Because slave-labor was more costly than paid-labor.  Contrary to the common misconception.

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Britain is looking to sell the Royal Mail to escape Out of Control Pension Costs

Posted by PITHOCRATES - July 13th, 2013

Week in Review

The United States Postal Service isn’t the only postal service flirting with the idea of privatization.  So is the Royal Mail.  And, predictably, some are not happy about making government jobs like private sector jobs (see Royal Mail privatisation ‘will lead to soaring prices and job losses while taxpayer keeps debts’ by Graham Hiscott posted 7/11/2013 on the Mirror).

STAMP prices will soar and jobs will be slashed when the Royal Mail is privatised.

The warning came from critics as the Government announced its controversial plan to kick off a £3billion sale.

It is feared the sell-off could see a big chunk of the company snapped up by foreign investors, with investment banks raking in millions in fees.

So while the Treasury pockets a pre-election windfall, the taxpayer will still be paying for Royal Mail’s £12billion pension deficit.

Chuka Umunna, Labour’s Shadow Business Secretary, said it amounted to “nationalising its debts and privatising its profits”.

This pretty much says it all.  Pension costs are so out of control that the only way the Royal Mail can survive is with huge government subsidies.  And if they cut those subsidies they will have to pay for those pensions with the revenue from stamps.  Which means stamp prices will have to rise to replace those lost subsidies.  So these government workers can continue to enjoy those generous pensions.

Britain has an aging population.  Like most of the developed world.  People are living longer.  Giving them more time to suffer more diseases.  Raising the cost of pensions and health care for retirees.  Ponzi schemes like state pensions worked when there was an expanding population growth rate with more people entering the workforce than were leaving it.  But those days are long gone.  As are the days of defined benefit pension plans.  Where today they only result in unfunded pension obligations.  And companies like the United States Postal Service and the Royal Mail unable to pay their bills.

The reason why unions resist the privatization is that these business models cannot survive in the private sector.  For their labor costs (pay and benefits) far exceed anything available in the private sector.  And the only way they can keep those generous pay and benefit packages is by having the taxpayer subsiding their cost.  But if they go private and it costs $7.50 to mail a utility payment people aren’t going to mail their utility payments anymore.  And people will see the true cost of union labor.  Which means either unions must match the pay and benefit packages they have in the private sector.  Or they will lose all their union jobs.  Because no one is going to pay $7.50 to mail a letter.

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The Rise and Fall of the American Textile Industry

Posted by PITHOCRATES - July 2nd, 2013

History 101

Inventions and Innovation gave the United States a Burgeoning Textile Industry

The American textile industry was founded by businessmen.  And inventors and their inventions.  Not by any labor movement.  For before there could be a labor movement there first had to be industry to employ laborers.  And laborers weren’t creating these industries.  They were just selfishly waiting for others to do this so they could get a job in them one day.

We may never know which came first.  The chicken or the egg.  But we do know which came first when it comes to industries and laborers.  The mind came first then the muscle.  Rich people with a keen eye to judge a good investment.  Businessmen and entrepreneurs unafraid to take a risk.  And who will throw their body and soul into their business.  Then the non-risk taking people come along.  The laborers.  Who have no skin in the game.  Who wait until the minds come together to create something in which they can apply their labor.  And get a paycheck.

Samuel Slater built cotton mills in New England (1800ish).  Slatersville Rhode Island, the town he established, bears his name.  Francis Cabot Lowell and Paul Moody created a more efficient power loom and a spinning apparatus (early 1800s).  Elias Howe invented the sewing machine (mid 1800s).  And the lock-stitch.  Throw in a few more inventions, some improvements on past inventions and some innovation and you have a burgeoning U.S. textile industry.

The Luddites went about England smashing the Machines of the Mechanized Textile Industry

Cloth-making used to be a labor-intensive activity of highly skilled artisans.  For those who had the money to afford the costly clothing they made.  Many could not.  And made their own clothing in the home.  Women would spin fiber into yarn.  And weave the yarn into cloth.  Which was very labor intensive.  Allowing only a meager production of clothing for the family to wear.  Which meant a lot of darning for worn out clothing.  Hand-sewing patches to cover holes.  Sewing ripped seams back together.  And sewing together rips and tears.  Until the clothing was so worn that it couldn’t be darned anymore.

It is hard to fathom how important this was during early America.  A time of a mini ice age.  In the north the winters were long and they were cold.  This homemade clothing may not have been pretty.  But it could keep you from dying of exposure in those brutally cold winters.  The mechanization of the textile industry changed all of that.  Smart inventors and business owners used machines to automate the cloth-making process.  Allowing less skilled people to operate smart machines.  Producing more clothes for less.  Bringing the cost of clothing down.  So anyone could afford to buy clothing.

Of course, this did not make everyone happy.  As those machines replaced the need for highly skilled artisans.  Who demanded high prices for their craft.  Allowing only the rich to afford their wares.  They didn’t like these machines cutting into their high wages.  And did something about it.  A group of people called ‘Luddites’ went about England smashing the machines of the mechanized textile industry (1811-1817).  Hoping to force a return to the old ways of making clothing.  By skilled artisan.  Where only the rich could afford to buy clothing.

Unions have Exported Entire Industries to Emerging Economies to Escape Soaring Labor and Regulatory Costs

Just as the textile industry was modernizing and mechanizing two seamstresses formed the first all-women’s labor union in 1825.  The United Tailoresses of New York.  Protesting 16-hour workdays.  And the lack of a living wage.  Strikes followed.  The Lowell, Massachusetts, mill women’s strike in 1834.  The Manayunk, Pennsylvania, textile strike in 1834.  The Paterson, New Jersey, textile strike in 1835.  And the Llowell, Massachusetts, mill women’s strike in 1836.  In 1844 women formed and ran the Lowell Female Labor Reform Association.  Then more strikes.  The Cohoes, New York, cotton mill strike in 1882.  The Fall River, Massachusetts, textile strike in 1884.  The Augusta, Georgia, textile strike in 1886.  The Fall River, Massachusetts, textile strike in 1889.  In 1890 New York garment workers won the right to unionize.  Close their shops to nonunion workers.  And fire any nonunion workers on the payroll.  In 1900 the International Ladies’ Garment Workers Union was founded.  In 1901 the United Textile Workers was founded.  Then came the New York shirtwaist strike in 1909.  Massachusetts passed the first minimum wage law for women and minors in 1912.  Then came the Lawrence, Massachusetts, textile strike in 1912.  Giving us the walking picket line.  Then the Paterson, New Jersey, textile strike in 1913.  The Amalgamated Clothing Workers union was founded in 1914.  Then the Fulton bag and cotton mill strike in 1914.  The Passaic, New Jersey, Textile Strike in 1926.  And so on.

The Luddites hated the machinery of the modern textile industry.  As they didn’t like the idea of replacing many highly skilled and well-paid artisans with automated machinery operated by fewer low-skilled laborers.  So they tried to smash the automated machinery.  To try and save their jobs.  Which the labor movement was happy to see go away.  For they would rather pack as many low-skilled laborers into those Dickensian factories as possible.  For the more members they had in their unions the more powerful they were.  And the more they could demand from the business owners.  They demanded a lot, too.  Higher wages, shorter hours and better working conditions.  So much so that the cost of labor rose while productivity fell.  Throwing the door open to foreign competition.

The big labor movements used their friends in government to protect their generous union contracts.  By passing pro-union legislation.  And placing tariffs on imported textile goods.  Keeping clothing prices high.  So business could earn enough to pay those generous union pay and benefits.  But this left these businesses uncompetitive in the world’s markets.  Which they wanted to sell in.  For it wasn’t only Americans that wore clothes.  Those union contracts increased labor costs so much that businesses found it hard to remain in business let alone remain profitable.  So they started leaving the United States during the 20th century.  Which is why today there is no U.S. textile industry.  Because of the high cost of labor.  And costly regulatory policies.  Where is the textile industry today?  In the emerging economies.  Where labor and regulatory costs are lower than in America.  While the standard of living for those employed in these factories are often higher than their fellow countrymen.  Which is what unions have often done in the United States.  Create good jobs in emerging economies.  By exporting entire industries from the United States to these emerging economies.  Where they can escape soaring labor and regulatory costs.

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