Obamacare: Repeal is Not Impossible

By Dom Armentano

Obamacare was sold to the American people as a humanitarian attempt to provide health insurance to the poor and to individuals with a pre-existing medical condition who had been denied coverage. If you were not poor, did not have a pre-existing condition, and already had health insurance and were satisfied with its coverage and rates, you were repeatedly assured that you could keep your plan and doctors. Right.

We now know that the selling of Obamacare was a giant con job. After all, if its proponents had really been sincere, they would have argued that the alleged poor simply be provided vouchers (similar to food stamps) to help purchase insurance; further, a simple one-sentence piece of legislation could have required that insurance companies not automatically exclude potential customers based on some pre-existing medical condition. Done deal. Instead, what we all got smacked with was a 906 page regulatory and tax monstrosity that amounts to a federal makeover and takeover of the entire health care industry.

Can we repeal Obamacare? Defenders of the law, and even some moderate critics from both political parties, assert that repeal is impossible at this point. After all, Obamacare was passed by both houses of Congress, signed by the President, and parts of the law were declared constitutional by the Supreme Court. Moreover, billions of federal tax dollars have already been spent on the bungled website and countless bureaucrats (including those in the IRS) to administer the new regulations and taxes. Thus, defenders assert, there is simply no precedent for repealing a federal law that’s this important and complex.

Nonsense to that. There is in fact major precedent for repealing important and complex federal law that destroys personal freedom and raises costs and prices to consumers: The Supreme Court’s de facto “repeal” of the National Industrial Recovery Act (NRA) in 1935.

It is difficult now, looking back, to appreciate the full scope and complexity of the NRA (1933). Yet the NRA was the legislative centerpiece of the Roosevelt Administration’s attempt to end the Great Depression and return the country to prosperity. Its major objective was to end “ruinous” price competition (deflation) throughout the economy by the creation and enforcement of so-called “codes of fair competition.”

These codes–created by industrial trade associations and enforced by the federal government–allowed business competitors in any given industry to collude legally and raise prices…with the antitrust laws conveniently suspended. Industrial firms, wholesalers and retailers that wanted to price their own products in defiance of the legal code were forbidden from doing so by law. To encourage labor to go along with this unprecedented government support for economy-wide monopoly, separate NRA codes also encouraged the formation of labor unions and mandatory collective bargaining. There were also separate provisions in the NRA for command and control regulation of the petroleum industry.

The NRA and its distinctive symbol (the “Blue Eagle”) struggled to fly for two years until it unceremoniously crashed to earth in 1935, declared unconstitutional by the High Court. (Roosevelt was so incensed by the decision that he threatened to “pack” the Court by appointing additional judges). The entire gargantuan enterprise, much like Obamacare, floundered badly under the weight of an inefficient NRA bureaucracy, labor union strife and strikes for recognition, endlessly confusing and changing “code” regulations and the eventual loss of political support from working-class households. Besides, there was no evidence that the NRA promoted recovery; indeed, its restrictions on commercial liberty made economic growth far more difficult.

If the NRA could be dismantled and tossed in the legislative scrap-heap, so can Obamacare. The alternative to Obamacare (when Congress repeals it) is the creation of a competitive market for both health insurance and health care. Insurance companies must be free to compete across state lines, free to offer a diverse menu of coverage’s and deductibles and free to price their product based on estimated risk. And health care providers must be free to treat patients absent government licensing and regulation. If we’ve learned anything from the NRA experience, or the “glitch” over the Obamacare website, it’s that government regulation makes almost every economic problem infinitely worse.

Dr. Armentano is professor emeritus in economics at the University of Hartford and the author of Antitrust and Monopoly(Independent Institute, 1998) and Antitrust: The Case for Repeal (Mises Institute, 1999). His first workplace experience was picking strawberries at a commercial farm for 6 cents a basket in the 1950s.

Copyright © 2014 Dom Armentano. Reprinted with permission.

The Truth About Minimum Wage Laws

By Dom Armentano

The only relevant issue in the debate about a government mandated minimum wage is: Does it reduce employment opportunities? The debate is not whether some workers will be better off after legal minimums are increased; some workers will. The debate is not whether “consumption” may increase when some workers are paid higher wages; it may, although unemployed workers will consume less. And the debate is not whether “rich” employers can afford to pay higher wages; some surely can, but whether they should be forced to do so by law is another matter entirely.

Defenders of the minimum wage law make two broad claims. The first is that raising the minimum wage does not increase unemployment among the young and poorly skilled, the only relevant labor pool; and two, that there are empirical studies that support the conclusion that higher minimums don’t hurt employment.

Common sense, logic, and the law of demand easily refute the first contention. Raising the price of anything, while holding other variables constant, always reduces consumption somewhat. With income fixed and substitutes available, private employers use marginally fewer workers when their wages are increased by law. Simply exaggerating the wage increase will make the point obvious: If we double the minimum wage and leave productivity unchanged, is there anyone on the planet who believes that employment would not dramatically decline? Well by the same logic, a marginal increase in the minimum wage, say from $8 to $10 as California has just legislated, will have a marginally negative effect on young and low-skilled employment. Case closed.

But not so fast say the defenders of minimum wages. What about the studies (done by reputable economists presumably) that fail to discover job losses when legal minimums are increased? Well the problem here, of course, is that “testing” a proposition in economics is not like testing some theory in physics or chemistry.

In chemistry, for example, it is possible to accurately measure an increase in the molecular weight (mass) of a compound after mixing precise amounts of chemicals together. It is also possible to repeat the very same experiment and get the very same results in any lab anywhere in the world. Economic phenomena, however, are of an entirely different nature. The data in economics is all historical and the economic consequences observed are likely the result of numerous influences, some known some unknown, most of which cannot be accurately quantified at all. Thus, given the inherent nature of economic data, the best that we can say about an economic study that claims to “test” some economic principle is that the findings may be “illustrative” of certain expected outcomes….but that is all.

Now having said that, are we going to concede that the weight of the “evidence” concerning minimum wage laws is that there is little or no unemployment effect? Hardly. The fact remains that there arehundreds of studies (also done by reputable economists, presumably) that conclude that there ismeasurable job loss when minimum wages are increased.

When the very first federal minimum wage (25 cents) went into effect in 1938, the U.S. Department of Labor itself determined that between 30,000 and 50,000 low-skilled jobs were likely lost due to the law. A comprehensive review of several dozen minimum wage studies by the Federal Minimum Wage Commission in 1981 found that most showed employment declining. On average, for every 10% increase in the minimum wage, employment declined 1-3%. And as recently as 2006 economists David Neumark and William Wascher reviewed more than 100 minimum wage studies in the economic academic literature and concluded that 85% of the strongest studies found that low-skilled employment opportunities declined when the minimum wage was raised.

There are still other sources of data that support the notion that minimum wages are a job killer. In 1948 teenage unemployment rates were about 10% while workers over age 25 had a 3.4% unemployment rate, a 6.6% differential. Yet today the teen unemployment rate is more than 25% (over 40% for black teens) and gap is an astounding 18% higher than the general workforce unemployment rate (7.2%) for workers that are older with more work experience. There is almost unanimous agreement among economists that this huge differential is largely attributable to minimum wage legislation.

Finally, states that set a far lower minimum wage for teen workers generally have lower unemployment rates for teens. Florida and Texas set far lower teen minimums and have lower teen unemployment rates than, say, California and Oregon which make no exemption for younger workers.

In short, the preponderance of the evidence over the last 75 years is that low-skilled jobs (mostly held by the less-educated and less-skilled young and minorities) are extinguished by government wage fixing. Absent the repeal of minimum wage laws–which is totally justified by theory and the bulk of the economic evidence–the best that we can do is urge the Congress and the states to allow employers and young workers to freely negotiate wage rates or, alternatively, to set far lower legal minimums for younger and part-time workers.

Everyone at some point needs an entry-level job and a chance to climb an employment ladder to higher pay. There is no moral or economic reason why government should discriminate against such jobs or eliminate the first few steps of that ladder.

Dr. Armentano is professor emeritus in economics at the University of Hartford and the author of Antitrust and Monopoly(Independent Institute, 1998) and Antitrust: The Case for Repeal (Mises Institute, 1999). His first workplace experience was picking strawberries at a commercial farm for 6 cents a basket in the 1950s.

Copyright © 2013 Dom Armentano

The above originally appeared at LewRockwell.com and is republished with permission of the author.

Minimum Wage…Maximum Nonsense

By Dom Armentano

In his 2013 State of the Union message, President Obama suggested that Congress increase the federal hourly minimum wage from its current rate of $7.25 to at least $9.00. Several states are also debating an increase; indeed, the California legislature recently approved and Governor Jerry Brown just signed a bill that would boost their hourly state minimum from $8 to $10 in three years. In Florida where I reside, the legal minimum (with some important exceptions) is $7.79 and is inflation-adjusted annually.

Is the current national hoopla to “do something” about minimum wages another governmental mistake? Absolutely. Minimum wage laws lessen employment opportunities for workers (especially teens and low-skilled workers) and hurt some of the very individuals that they are allegedly designed to help…the working poor. Boosting the minimum wage substantially at the state or federal level would be a public policy mistake.

To see why this is so, let’s answer the following question: What likely happens when we increase the price of beer, or vacation rentals, or books, or newspapers, or almost anything, while holding other variables constant? Answer: Fewer units (of beer, vacation rentals, books, or newspapers) are sold in the marketplace. In economic theory that’s the so-called “law of demand” in operation; at higher prices, fewer units of some particular good or service are purchased.

There are several logical reasons for this conclusion. The first is that goods and services are purchased out of someone’s fixed income. If, say, I have $500 to spend (and no more) on bags of mulch for gardening and the price of mulch increases, then I simply must purchase fewer units of mulch. In economic theory, this is called the “income effect” and always operates to reduce the number of units sold.

Another reason a price increases lowers consumption is that buyers tend to substitute a relatively cheaper product for the good whose price has increased. Price increases for premium mulch push consumers to buy a non-premium mulch instead; developers substitute less desirable building lots for more expensive ones; as newspaper subscriptions increase, consumers move increasingly to substitutes (the internet) for news. This so-called “substitution effect” practically guarantees that higher prices for some particular commodity will mean fewer sales of that commodity.

The law of demand operates in all markets including and especially labor markets. If I operate a lawn service or a car dealership or if I’m a large box retailer, any increase in the price (cost) of labor that is not accompanied by an increase in productivity, will decrease my incentive to hire or retain workers; with my income revenue relatively fixed, I simply must use fewer factors of production. In addition, I also have an incentive to substitute some (cheaper) non-labor resource in an attempt to maintain the overall productivity of the operation. Thus the monetary incentives associated with the income and substitution effects result in fewer workers hired or retained.

This is especially true if the “labor” under discussion is relatively inexperienced and only marginally productive. (Florida allows a lower “training wage” for workers under age 20 but only for 90 days; most states are not even that generous). After all, wages paid by an employer tend to reflect the estimated monetary contribution an employee is likely to make to overall production. If, for example, there is a new government minimum wage law of $10 per hour and some employees currently generate, say, only $8 in revenue for the company, those workers are on their way to the unemployment line. The law of demand will simply not allow a rational employer to retain those workers or hire workers with similar productivity profiles.

Some advocates of the law claim that “studies show” that increasing minimum wages does not lower employment as “theory” predicts. False on several levels. First, most careful studies do show employment declining. Second, the few that don’t may be seriously flawed since they fail to account accurately for certain variables (productivity, changes in personal income, etc.) that simply “wash out” the negative employment effects of higher minimums. Finally, in a strict sense, historical data cannot “prove“ (or falsify) any theory (though it may be illustrative of probable outcomes) since it’s always unclear which (exogenous) variables are relevant and/or fully accounted for in any empirical study. Methodological issues aside, we can be assured by logic and common sense that raising the price of almost anything tends to lower consumption of almost anything, everything else equal.

Minimum wage laws always decrease employment opportunities and always interfere with free choice and the freedom of contract. They are supported by politicians seeking votes and by labor unions anxious to cripple non-union, low cost competitors. They are also inherently discriminatory since they hurt only workers on the lowest rung of the employment ladder; workers making $30 an hour are not directly affected. And increasing the minimum wage provides no boost to overall “consumption” (as advocates maintain) since the workers displaced easily negate any (slight) income change for the workers retained.

Finally, increasing the minimum wage is hardly some “moral imperative” as some of its vocal, self-righteous advocates maintain. Indeed, government-mandated minimum wages are an immoral infringement on individual rights and an inefficient economic hoax parading as enlightened public policy. “I’m from the government and I’m here to help you…the working poor.” Don’t buy it.

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Copyright by Dom Armentano (2013). Professor Armentano is the author of Antitrust & Monopoly (Independent Institute) and Antitrust: The Case for Repeal (Mises Institute). He has written hundreds of public policy op/eds over the last 4 decades. He lives in Vero Beach, Florida.

The above originally appeared at LewRockwell.com and is reprinted here with the permission of Dom Armentano.

NSA Snooping: What Short Memories We Have

Dominick Armentano emails:

My op/ed on NSA snooping (and SHAMROCK) in 2005! What short memories we have.

Appeared at LewRockwell.com in 2005:

Last week the New York Times revealed that the National Security Agency (NSA) has been secretly intercepting telephonic and email communications between U.S. citizens since 9/11. This systemic non-court-sanctioned domestic spying is, of course, strictly illegal but President Bush quickly and casually rationalized all of it in the name of "protecting us from terrorism." Almost immediately the usual outraged congressional suspects (Senators Kennedy, Schumer, Specter) admitted that they were shocked, yes shocked, by such a blatant abuse of governmental power and promised Capital Hill hearings to resolve the matter. Sure.

But to be "shocked" by the recent New York Times revelations is, frankly, to have been fast asleep for the last 50 years. The private activities of thousands upon thousands of Americans have been shadowed, followed, monitored, and placed under surveillance since World War 2 and mostly without any judicial oversight whatever. The bulk of the domestic snooping has been related to alleged issues of national security and has been accomplished by the FBI and various military "Intelligence Agencies" such as those maintained by the Air Force, Navy, Army, and Marines, later subsumed under the Defense Intelligence Agency (DIA). All of these agencies have maintained thousands of files on individuals and groups of "interest" for decades without any seriously raised congressional eyebrows.

The NSA got into snooping big time back in 1967 when they started collecting information on various groups and individuals associated with anti-Vietnam War protesting. But the closest parallel to the recent domestic NSA spying is the World War 2 cable intercept program, code-named "Operation Shamrock." Shamrock was instituted during the War to intercept cable transmissions between U.S. citizens and foreign nationals, companies, embassies, and governments. The intercepts were accomplished with the willing support of U.S telecommunications companies such as ITT, RCA, and Western Union and the entire operation was super secret.

Like many of the activities of the NSA today, the federal congress in the 1940s, and perhaps even President Truman, were blissfully ignorant of the existence and scope of the snooping program. But even more importantly, the domestic and foreign cable transmission intercepts continued AFTER the War and, indeed, for the next thirty years in almost complete secrecy. No President until Nixon, apparently, was even aware of the domestic side of the snooping and no legislation was ever introduced to legitimize domestic cable surveillance. The program that never officially existed was terminated (supposedly) on May 15, 1975.

Who says that agencies of government can't keep secrets, even from Presidents. The Operation Shamrock secret was kept in a lock-box for almost thirty years. If the information is compartmentalized enough, and if the media is compliant enough, secrets can be kept.

Am I outraged by the recent spying revelations? Of course. There should be no government monitoring of private communications (telephone, email, cable, etc.) absent prior approval from a judiciary that demands the highest proof of a national security "risk." But am I surprised that agencies like the NSA have, again, illegally snooped on Americans, this time with a presidential sanction? You must be kidding.