Minimum wage/Livable Wage

Not only does a minimum wage have an overall positive impact, but along with the numerous anti-poverty programs, they have contributed to reducing poverty from 22+% at the start of LBJ's "war on poverty" to a low of 12+% during the late 70s (only to rise during the Reagan admin when programs were cut) and late 90s (only to rise again during the Bush admin when programs were cut). The current rate of 15+% will only continue to rise if Republicans gut more social safety net programs for the sake of long term debt reduction.

 

It is big brother, big government, nanny state folks who treat people like live stock. I prefer people have freedom to make their own choices and reap the true benefits and risks of those choices.
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Spending happens in all income economic categories.
Shifting spending from long-term investment to current consumption - hurts long-term economic activity.
To know the impact of increased spending by income economic categories we need to look at what the money is being spent on.

And like I have been emphasizing the key to helping the working poor has more to do with reducing the costs of essential living services as a percent of their spending. Until and unless we do this, an arbitrarily set minimum wage is pointless -$8, $10, $20, $30 it is all academic until structural changes are made. Safe, clean and affordable housing is not going to magically appear.
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Given the wealth created in the US in the period in question the percentages in poverty have hardly moved - children living in poverty has increased in percentage terms.

Why haven't the poor benefited from the vast amounts of wealth created in the US? I will tell you, it is because we focus on silly things like the minimum wage. I have owned my business for about 15 years, there have been about 6 of those 15 when my personal income/hour has been less than the minimum wage. My focus has never been on my hourly wage.

 

Related to an analogy you said does not work.

I responded to your comment regarding a shift of income to lower income categories where you state the money would be spent.

Again, regarding a shift in spending - long term healthy economic growth requires investment. There has to be balance. A farmer has to set aside for seed corn - next years crop. Perhaps another anology that won't work for you.

If above market wages are required, given limited resources, there would be resources taken from somewhere to fund excessive wages. If the wage is a market wage, in balance along with other aspects in balance the result is maximization. That should be the objective.

My focus is on relative spending. If working poor spend 50% on housing, middle class spend 30% and the wealthy spend 10% and over time the wealth gap increases - perhaps a better focus would be in this problem - not nominal wages. I simply suggest we dig deeper get a better understanding of what drives wealth disparity and poverty and address the real causes. I argue address housing is the easiest thing to do. No family should spend 50%+ of their income on housing - poor housing - unsafe housing - how about this for a role for government?

 

Keep in mind that it isn't just housing prices, it is the interest we have to pay to banks for years and years too. The Feds and the Federal Reserve banks have adjusted interest rates that help reduce the amount we have to pay to the bank each month. And there is the mortgage income tax deduction.

But, I am afraid of what will happen about 10-20 years from now when the generation that was able to buy houses in California for $150,000 and Arizona for $50,000 in the 80s leaves them to their kids in the will and there is no way Gen X or Y will have the stability or savings to handle picking up the property taxes on those homes.

And we aren't going to be seeing the $100,000 starting salary for college graduates anytime soon that would be required to be able to prevent another housing crash in the future. I'm not quite sure where that income number is that would make someone feel good about their financial future, but at $60,000, I have to work hard at saving $20,000-$30,000 a year. I feel OK, but would feel better if I knew I was going to be making at least $60,000/year for the next 15-20 years. I still don't know if it would be enough, but I think it is impossible to plan for every possible outcome and emergency expense. And I don't know what kind of retirement I want to have either. I would like to see low cost communes setup for active, but not rich retirees.

It does goes to show you how big the problem is for people making minimum wage today when you try and figure out how they will be able to save enough to retire. How will they be able to afford saving thousands of dollars a year for medical expenses and retirement income on what they make now?

 

The rich can live in a million dollar house, the middle class in a $200,000 house and the poor in a $800 rental. But, if a medical emergency arises, they all get socked with the same multi-thousand dollar bill. The richer folks will likely have a more comprehensive health coverage to cushion the impact, the middle class will have less coverage and the poor, little or no coverage. Who suffers the most, economically, when the health crisis hits? Who will be plunged more desperately into debt? This is why health care reform and universal coverage would have a greater benefit than adjusted housing prices.

Google "health debt bankruptcy" and "housing bankruptcy." The first will return reams of info on bankruptcy caused by medical debt. The second will return info on how to acquire housing after bankruptcy (and little to no articles about housing caused bankruptcy, despite the foreclosure rates of the past decade). If you want people to be able to make better choices about how they spend their money, take the health care monkey off of their backs.

 

The 24 most recent studies on the impact of a minimum wage from economists across the spectrum have one thing in common -- they all find that it reduce poverty.

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Ace....still waiting for you to post the cost to taxpayers for your alternative plan to simply expand the EITC and combine all other income support programs. I would guess it is $billions, even in the short term.

 

I would challenge you to do an analysis on your own. Pick an urban center, look at past rents 5/10 year, vacancy rates, average income, housing units, etc.
Look specifically at two groups, those who own rental property and those who rent - what have the trends been for those groups. Then project going forward 5/10 years.

Look at government policy and asses the impact. For example interest rates are artificially low - those who own rental property can finance the property at about 5% - after taxes and inflation the cost of the money is close to zero - they can get an 80% loan to value, putting 20% of their own cash at risk, that is a 5X leverage rate. Think about that - 5X. A 5% gain in property value results in a 25% gain on invested capital! Restrict the supply of new units, raise rents... rents establish the value of rental property....and we can easily see why the wealth gain more wealth. On the other-hand if people are paying 50% of their income on rent, there is little hope of wealth gains. a rental property owner will easily support a minimum wage increase. Why? To increase rents. And with limited supply rents will raise to the level of the working poor paying 50% of their income. It is a cycle, a cycle that will continue unless we do something different. the reality is that, those who know don't want to do anything different, those who don't know simply can feel better about passing a minimum wage increase.

In advance, please spare me any data on Section 8 housing subsidies. It is a great benefit to the selected few who get it, a great benefit to rental unit owners who can charge more rent, but harmful to everyone else. The solution is increasing the supply of affordable housing units.

We already spend billions, I would restructure what we spend and how we spend it. I would focus on what works. In the end I would save the government money. If I ever run for office I will flesh out details. I doubt I could get elected for anything - what I suggest is far to radical. For example on the issue of affordable housing and its impact on the working poor, liberals like you don't get it, landlords would not tolerate it, homeowners hold the view of NIMBY regarding affordable housing, bureaucrats don't want to give up control, etc.

 

Ace...I am of the opinion that public policy should be based on data and facts or at least reasonable theoretical outcomes based on widely accepted models and not cherry-picked or manufactured anecdotes and beliefs, which is all you have offered in this discussion.

 

I ask that you actually look at data. I have. I ask you to crunch your own numbers. I have. If you look at real numbers, the housing issue is the 800 pound gorilla. The trends scream out what is happening and why it is happening. What you often cite, is very abstract and academic. Just looking at one simple point between those who own rental property and those who rent - a 5X leverage and the compounded annual impact of rental increases. Put real numbers for your area in a spreadsheet. After that lets discuss policy and the historical impact of minimum wage increases. Just look at housing affordability pre and post any past minimum wage increase and tell me what you find. I will tell you what I found - no change.

 

Look at any urban center of your choice! Look at the housing unit numbers and trends. Am I typing for no reason? Then after looking at the numbers, different areas have different issues, look at zoning, housing regulations, permitting and related issues for an answer. Personally I have lived in several areas where homeowners would do virtually anything to restrict affordable housing units, the NIMBY, philosophy to an extreme. And many of the most active and vocal where liberals who would then advocate for livable wages and not wanting a Wal-mart.

Part of the problem is with the stereotype of crime being affiliated with affordable housing. I recall once in a meeting about 10 years ago where the community was reviewing a project for senior citizens - even that met resistance - "what about the grand-kids, they will move in or visit...."

What you will find is that communities that plan, with a balance of affordable housing, regular housing, commercial, industrial (mixed use) manage pretty well with affordability and the quality of life for all.

 

This isn't good science. You can't convincingly refute peer reviewed research by saying, "Well, I've looked at the numbers and I disagree." Show your work. Upload your Excel file. Show us how you accounted for all the complexities of a modern economy. Otherwise, bullshit.

Most of the time, when a person does their own research and it contradicts results of published research, the source of the contradiction is the amateur's misunderstanding of the data and/or analysis.
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So you're abandoning your cattle metaphor then?

 

I actually agree with Ace on expanding the EITC (and Reagan who said the EITC is "the best anti-poverty, the best pro-family, the best job creation measure to come out of Congress”).

But at a cost of $50+ billion annually at present (third most costly income security program after Medicare and SNAP), an expansion would be much more costly to taxpayers than a higher federal minimum wage... despite a "magic beans" consolidated proposal with no costs attached offered as an Ace alternative.

And the fact that the EITC that Reagan supported so enthusiastically is now derided by the Tea Party Types as a means for lots of "freeloaders" to get out of paying taxes.

 

I tend to agree with Ace's assessment of the situation though. Reducing housing costs on existing places is a good start, and would have a bigger impact on poverty than increasing the minimum wage, which will cause rents to go up the next time the lease is up. Rents didn't fall during the last recession because people who lost their homes ended up creating more demand for apartments. Maybe once home prices are stabilized, rents will come back down. But, if immigration passes, land running out to build on, and with more young people delaying buying a house, I think it is still going to be a good market to be in. And, I bet it would be hard to find a inexpensive ($10/day would be ideal) 'nice & modern' apartment in most cities, that would be able to filter out the people who are bad influences or will cause problems... $300/month rent is what someone making $7.25/hr would need to be able to save something at the end of the month.

 

Until a couple of tax code revisions ago, owning rental property in the U.S. was a gigantic tax shelter.

As I understand it (and I was never directly involved), you were allowed to take generous depreciation on your buildings, so that their book value declined steadily from year to year.

If managing the property itself was cash-neutral (the rent revenue covered the costs of maintenance, management, etc.), subtracting that depreciation meant that the enterprise had a sizeable "passive loss" for tax purposes.

High-income professionals (physicians, professional sports players, etc.) would own shares of a rental property, or a portfolio of a whole lot of rental property, and use those passive losses against their taxable income, thus substantially reducing their federal income taxes.

When the time came to sell the property, of course it would be worth much more than the book value -- but the difference between sale price and book value would be taxed at lower capital gains rates.

So Congress, recognizing that this was a scam, finally got rid of it. Under the revised tax law, you could no longer use "passive losses" against earned income, unless you were directly involved in managing the rental property.

Real estate analysts said, whoa, this radically changes the economics of rental housing. It was predicted that, to make up the loss of this tax benefit, rents across the board would have to rise about 30%.

Low income housing advocates and social workers braced for a massive crisis of housing affordability. The whole tax shelter thing was seen as a massive federal subsidy for all American tenants, so repealing it looked to have massive consequences.

However, there's more than one way for the market to fall back into equilibrium.

Instead of rents rising, the value of rental property fell. Rents stayed about the same.