The restaurants are failing, the restaurants are failing, sound the alarm

I think I can be accurately described as a foodie. I love good food, wine, beer, coffee and cheese in particular. I spent several years in and around the restaurant industry. I ran across this article this morning from the Arizona Republic about how the restaurant industry is struggling.

One of my longtime pet issues is how waiters and waitresses are not even paid minimum wage. Which is why the quote below bugged me so much:

Meanwhile, a higher state minimum wage has pushed labor costs up rapidly. While relatively few workers made the minimum wage, employees who receive tips saw their guaranteed hourly wages climb from $2.15 an hour to $3.90 in just more than a year. Owners say this aspect of the law helps employees who already were doing well and cuts into restaurant profits.

I find it fascinating that an industry that has been able to keep a certain class of workers outside of the minimum wage system for years is complaining about $1.75 increase in pay. I have not waited tables for at least 15 years, but I was making $2.15+tips when I did. I don't know too many industries that get to keep their wages constant for more than a decade...

Does it really hurt so much when you add $80/week?

BTW -- Havana Cafe lady, I just wanted to let you know that I have only eaten in your restaurants once and it was one of the worst meals I have ever had. In fact, it was inedible. I know any place can have a bad night, but it was so bad that I could not bring myself to return.

You need to read this my Conservative friends (and Liberal ones)

If you have ever wondered why I am an advocate of free education through college, this is it in a nutshell. It’s the economy stupid!

A skilled workforce creates jobs. Education is an investment that is essential to a good economy. I always thought that the ranks of economists were filled with Conservatives. Why is that Conservatives seem to ignore the teachings of their brethren?

Our policies should be less about ideology and more about creating the kind of world we wish to live. Who wants to live in a world of perfect conservative ideology with a bad economy and an uneducated populace (or perfect Liberal ideology with the same problems)?

To my Liberal friends, the government does not create jobs. The government can set the table with education and a solid infrastructure, but the people bring the meal. The quote below should be a cause of concern for everyone that loves this country.

The economic benefits of a college degree are huge and growing, but the proportion of American high school graduates who enroll in college has been stalled since the early '90s. In fact, the rate of college participation for African American and Hispanic high school graduates has actually been falling.

Other countries around the globe are narrowing the income gap with the United States in large part because they're sending an increasing proportion of their young people to college and we're not.

This is precisely why Arizona should be providing more funding for education and universities and not less. The cost of tuition should be falling toward zero, not going up to reach the national average. This is even more true when there is a government funding problem. If workers can easily acquire new skills during a recession, it will be shorter lived.

Wake up Arizona. You live in the desert

Ethan Miller / Getty Images file

I don't have very much commentary to add to this, but when will our leaders and the people living in Arizona start taking this seriously? Do we want to end up like Georgia where they have a couple of weeks of water left and their governor's answer is to pray for rain?

We need to make environmentalism and conservation part of our economic growth model. Arizona should become the world center for solar power generation and research as well as the center for water efficiency and reclamation technology.

The two most important people in Arizona's budget battle (it's not the Gov or a legislator)

The East Valley Tribune has this fascinating insight into how economic forecasts are created for the state. There are two economists, one at ASU and one at UofA, that provide econometric forecasts for the state and this year their forecasts differ greatly.

I actually find it heartening that there are two guys who worry about the specifics of the economy and seem relatively non-political. This is why having great education intuitions is so important and why we should give more respect to intellectualism. It also more than a little ironic that these guys could cause the funding of their respective universities to be cut. To me this illustrates the importance of tenure (an economist would see an incentive to fudge the forecasts).

The politicians can fight their political fights (and they will), but without Marshall Vest and Dennis Hoffman, to provide the information, they would not even be able to discuss the future. Thanks guys!

The Governor is right and (as usual) the Legislature is wrong

There was this article from the East Valley Tribune about the current budget difficulties faced by Governor Napolitano and the legislature. The Republican controlled legislature gets things wrong as usual. The dispute can be summed up as a fight over about $300 million dollars. The governor wants to borrow the money (through bonds) and the legislature wants to cut spending.

I know all my anti-government Libertarians out there do not want to hear it, but cutting government spending in this context is a bad idea. First, borrowing for capital expenditures is the norm and a good practice for government to make large scale capital improvements. The $300 million dollar short fall is mostly intended to be used to build schools (a capital expenditure). Borrowing in this context is smart because it insulates the government somewhat from uneven revenue.

Here is the problem with cutting government spending in Arizona, we are always behind the curve of our growth. This means that our revenue growth trails our expenditures. If we keep government expenditures the same, we are actually falling behind because of growth. If we lived in the North East where growth is flat or declining it might be a different story.

I think a smart way to think of it is as a per unit cost. The unit being a person. Our government's costs on the state and local level increase with every resident. The revenue also increases, but not immediately. A person would have to live here a year before they would pay full taxes in Arizona.

Another thing to look out for is the state cutting state shared revenue to cities. This is the legislature's favorite budget balancing trick (along with stealing DSH funds from Maricopa County Hospital). In a nutshell, cities and counties are promised a certain % of revenue from the state. This was put in place when the state prohibited cities from having an income tax. Unfortunately, the legislature can cut the amount to balance their budget. This forces the real cuts to the cities. Way to pass the buck guys!

Something We All Can Agree Upon

I don't know why my blog draws so many Libertarians? I have to admit to having a little pride in that because I think they tend to be little more free thinking and interesting than the rest of the population. At any rate, here is a good blog entry from Daniel's News and Views about why spending tax dollars on stadiums is a dumb idea. I have railed against these boondoggles for years here is just one entry. I think this is one issue all my Libertarians friends and I can agree upon. Using public money to benefit a private enterprise is generally a bad idea, especially when there is little economic benefit and the business would do fine on its own.

I have never understood how these deals become so lopsided and how the public ends up walking away with almost nothing.

Product Safety Would Be Nice

This is why we need responsible government regulation. The article from the Arizona Republic outlines some of the most recent problems with Chinese products. Or how about this one. How about a little lead in your kid's bib?

This is precisely why trade agreements must be given more scrutiny. Free trade is fine as long as labor, safety and quality standards are the same, but they are not...

I don't want that much. I just want to feel reasonably certain that when I buy something that it will hurt me unknowingly. I would like to know that I buy my kid a bib it is not made with lead. I don't think that is too much to ask.

Especially given this phenomenon.

Living in Fantasy Land

I have mentioned this problem previously, but this article illustrates better than I could explain it. The article is based on a Zogby poll that addresses the budget of the Federal Government and the next president. Specifically, it addresses how the budget will be balanced. Guess what the people want? Their programs to stay the same and no taxes increased. While I can certainly understand the sentiment, it is a real problem.

This leads me to the thing I think is most important for Democrats in the future, the debate. Right now, the debate, the conversation, is dominated by Republican themes. While reality has intruded on their theories, the debate is still one that the other party designed. The real question for the future is how do we change the nature of the debate? We may have to suffer times of unpopularity to do the right thing. We must be aggressive in defending our positions and aggressive about attacking wrong-headed Republican policies. We must lead the country.

Worried about Education? Read This...

This is one of the most brilliant articles that I have read about education and educational outcomes. Here is the article. I have always been bothered by the people that complain that some inner city schools get more money (some actually do...) than better performing schools and how patently unfair that is... Rarely do I ever hear someone mention that it might actually cost more to bring struggling kids up to standard.

Our approach to education is really backward.

Anyway, read the article...

Hepatitis at Cheesecake Factory: There is a moral to this story

As many of you may have heard, there was an outbreak of hepatitis A at the Cheese Cake Factory in Phoenix. This got me to thinking about a couple of policy issues that people do not like to talk about rationally. The first issue is related to immigration. This is precisely why you don't want to cut off healthcare services to anyone. Obviously, a sizable portion of the restaurant industry is run with immigrant labor. Guess what, the people that make and serve your food make minimum wage, do not have health insurance and do not get paid time off (and that is the American citizens). Forcing immigrants underground is dangerous from a public health standpoint.

The second issue is the problem of every worker in the economy not having paid time off for illness (let alone recreation). I for one would be willing to pay a few more dollars for my pasta and cheesecake to insure that the person serving it could stay home with pay when they are sick. The simple fact is that many restaurant workers are a few days wages away from losing their apartment or car. Given the choice between working sick or giving up a day's salary, most people will work sick.

This is just another reason for universal healthcare and increased workers rights. Rather than spreading to costs to a few unlucky patrons, perhaps would should rationally spread the costs across our society...

Whoops, The Report was Only Off by $700 million?

Here is an article buried in the Arizona Republic about how the report from the Udall institute sites by Robert Robb here was not just 'revised' a little.

University of Arizona researchers understated the amount of state taxes
generated by immigrants by more than $700 million in a study released July 11,
they said Friday.

This still doesn't take into account the other economic impacts I site here. To me, this shows two things: One, how difficult it is to measure the economic impact of a large group of people. Two, everyone should be sceptical of data cited anywhere to support a political agenda (including here, Hell, especially here).

Robb, Please Tell the Whole Story...

Our good friend Robert Robb at the Arizona Republic latest column is about the economic impact of immigrants and undocumented workers. The reason I bring this up is not as much about immigration as it is the incorrect use of statistics. I have a problem with cherry picking data and brushing aside flaws to make an argument.

He makes a rather simplistic assessment full assertions to strengthen his argument, but makes no effort to backup anything with facts. He says:

I understand that the Udall study will be revised to increase the calculated tax contribution from illegal immigrants, but an argument can be made that the current figure is already overstated. It includes not only taxes paid directly by illegal residents but also the taxes paid by others supposedly as a result of their economic activities.

Additionally, education expenses are substantially understated.

Ok, great point, but where is the factual basis?

My other big problem beyond the assertions, is that the review is simplistic. The economics are much more complex than inputs and outputs for government services. In the end, immigrant labor amounts to a subsidy to those who benefit. Housing construction is less expensive, fruits and vegetables are cheaper to produce and so on. You cannot measure the impact of immigration without assessing its true economic impact.

What we are doing is transferring money from government coffers (greater use of government services by immigrants) and from the workers (in the form of depressed wages) to the profit margins of the companies (who use immigrant labor) and into the pockets of everyone who benefits from lower prices. What is bad about the system is that the benefits are unevenly distributed as are the costs. The system is great if you are building a new house or own a landscaping company, but really crappy if you are an unskilled laborer. I am not making a value judgement about immigration or immigrants just trying to state the reality.

As to the overall impact of immigrant labor, I think it is safe to say that we would survive without it. I would probably survive a gun shot to the shoulder or leg, but I prefer to not experience it. Furthermore, it is always easy to dismiss the pain involved with a policy that does not really affect you. How would you transition business dependant on the labor? What about landlords renting to the people you would deport? Would you deport someone with a child that is a US citizen? How about a husband and wife where one is a citizen and the other is not? What if you have a mixed marriage with a citizen and non-citizen with children who are citizens and the non-citizen is the primary bread winner for the family?

Can we get to point where we agree that immigration is not black and white, but many shades of grey?

The Rich Pay too Little in Taxes, Deficits Do Not Matter etc.

So, Bush and Romney's economic advisor thinks that:

...requiring the rich to pay more just because they are rich is little more
than officially sanctioned theft.

He did not say that, but quoted someone else saying it. It is clear to me he wanted to say it. In a time when the disparity between rich and poor is widening, middle class incomes are stagnant and globalization is breathing down our necks, it makes me quite angry to hear someone complain about increasing the top tax rate from 31 to 35%. The simple fact is this, as this inequality increases our society becomes less secure, more violent and worse for everyone.

I understand the inclination to say this is mine, I earned it and keep your hand off. I get it, but this is a larger societal issue. People have to feel that they have a reasonable chance at success and that cannot happen if you cannot get ahead. That cannot happen if people don't have a reasonable chance of buying a home, sending their kids to college and having health insurance. That cannot happen with most of our wealth concentrated among a few people.

We have crises looming over Medicare, deficits, social security and trade imbalance. None of these problems will be easily overcome.

Like it or not for the good of our society the rich must pay more in taxes.

Hedge Funds, why you should know more about them...

I know, I know, your eyes glaze over and you want to fall asleep when someone even mentions for the phrase hedge fund. I am sure you have heard it and most of you have no idea what they are and why they exist. While I am no expert, I will do my best to explain what they do and why they are important. Basically, hedge funds are largely unregulated investment vehicles used by large investors (investment banks, the super rich and such).

The good part is that they can make huge amounts of money, but they can also be very risky. Here is the problem, there is an incentive for many of these institutions to invest in hedge funds because of their very large returns. This increases risk in four ways: 1. Many of these investments are not well understood even by the investors. There is a huge amount of risk to our financial system by mainstream institutions being too heavily invested (think 1920's stock market crash). 2. The vast amounts of money and secretive nature make them more conducive to market manipulation. 3. They are basically unregulated. 4. There is pressure from institution to institution to be competitive. If one bank sees a 20% return a year over 5 years by using a risky hedge fund, it becomes increasingly difficult for other institutions to continue to invest more conservatively.

The other problem is that they are running out of large investors to invest in their funds and are starting to look at upper middle class people to fuel continued growth. This presents huge problems...

Here is the key, don't think of hedge funds like a mutual fund. They can literally invest in anything, which means they can invest in things like subprime mortgages (AZ Republic). Look at the example of Conseco Insurance which went bankrupt because of risky subprime lending(although this is not hedge fund related per se, it shows the danger of these schemes). Of course, who can forget when Orange County California went bankrupt because of derivitives investing, which is used in a lot of hedge funds. How about the case of Metallgesellschaft AG of Germany and Barings PLC of England both losing over a billion dollars in the derivatives market in a very short time. At Barings, the trader hid the loses for fear of losing his job... derivatives can be highly profitable, but extremely risky. Derivatives can be almost anything and are frequently so complex that you need a math professor to explain them (seriously...).

This quote from the AZ Republic article sums another area of risk:

"Wall Street firms and money center banks financed the leveraging up of hedge funds that purchased the exotic and illiquid fixed-income securities produced by the very same Wall Street firms and money center banks," he said in a note to
clients.Given the already apparent fallout in the subprime mortgage market, lending standards have shot up and the market for such investments has deteriorated. But that won't erase what already is out there, which is ugly and could get worse.

At the heart of this is a difference of opinion between the belief that market is inherently rational or whether society has an interest in protecting the public from some of the irrational behaviour that crops up from time to time that could disproportionally hurt unsuspecting members of the public. There is also the issue of bailouts paid with tax dollars that would be sought after a meltdown.

There are a few things here that I think are germane: 1. The market can be irrational in the short-term which can cause a lot of pain to the general public. We should do a cost/benefit when considering regulation of markets with a bias towards the public interest. 2. Industry cannot seek to kill regulation and expect bailouts when they lose a bet. 3. There is a national security aspect to this that is not being addressed. Many of these hedge funds are being heavily funded by people like the Saudis and the Chinese are entering the private equity market. Investment is good, but we should do our best to control risks to our economy.

That is it for my borefest of an entry...

Lies, Damn Lies and Statistics

There are many times that I wish I had more free time for research. This article from the Arizona Republic goes into a dubious on its face analysis of wage figures in and out of the Federal Government (they did not see it as dubious btw). Basically, the article compares salaries in the private sector (the entire private sector) against wages through the Feds. Surprisingly, with the help of the Heritage Foundation (wink, wink) they found that government employees make vastly more money than private sector workers.

On its face, this is wrong in sooo many ways. First, comparing the entire economy of an area to Federal employees is dubious at best because many lower level government jobs have been outsourced. There are very few janitors (or landscapers or dishwashers or cashiers...) working for the Federal Government. That is obviously not true for the private sector. Second, the article cherry picks areas around the country with highly skilled workers in professions like engineering and compares them to the whole economy.

More than half the workers in Martin County, Ind., for example, are employed at a Navy base that specializes in developing high-tech weaponry. The average $67,478 federal salary there is more than twice the average private-sector pay for that county.

Well I can't imagine why that would be?!?!?! I can't image a bunch of engineers and scientists making 67 k a year, that is unprecedented. So, should we pay them much less than that? Don't we need high-tech weaponry in places like, ahh I don't know, Iraq?

Well I have a counter example, I did an analysis of the salaries of a group of people belonging to the Business Roundtable. Interestingly, my analysis found that the average salary of their membership was 400 times the average salary of American citizen. Using that data to extrapolate out, all employees of private business must make vastly more than people in the private sector ;).

Interestingly, in the area where they claim to do job title to job title comparisons (which is extremely difficult to do BTW), they give hardly any information. Certainly not enough information to see how they calculated the salary information.

Here is my favorite quote:

Overall, high government salaries can be a drag on the economy if they attract rank-and-file workers who may be productive elsewhere, said Sherk of the Heritage Foundation."Wages are the way you allocate labor to what needs to get done," Sherk said. "But when government comes in and offers higher wages, then you mess up those economic signals. You direct workers to those occupations, to where their skills are less needed."

The idea that government does not need good people is ridiculous on its face. I want good and highly paid engineers working for the Army Corp of Engineers. I want qualified Project Managers and planners working for FEMA. Regardless of what these right-wing morons think, we need a government that works. Government is necessary for the long-term stability and well being of our nation. We are now competing in a world economy where government, labor and business communities are working hand in glove to make their countries more competitive. We cannot starve our government institutions and expect that we will continue to thrive with only 1/3 of the equation left.

There are lies, damn lies and statistics... And then there is analysis done by the Heritage Foundation.... How does kind of blatant propaganda make it into the newspaper?

Private Equity

I am the only person wondering about these private equity funds that are buying up some of the largest companies in the United States? Today it was announced that Alltel will be purchased by a private equity fund for $27 billion.

I am not saying that these purchases are necessarily bad, but they certainly seem suspect to me. I am going to have to do more research on the topic and update here periodically. I guess the biggest question that never gets answered is who is providing these huge amounts of capital. Are they foreign investors? Hedge Funds? A combination?