The Wages of Progressive Elitist Political Sins in California

Progressive elitist political sins have very real consequences.  It is often said that California leads the nation in trends such as progressive elitism.  It is certainly the intent of many of the major Internet media companies based in California, such as Google and Facebook, to lead America into a socialist future.  The California Budget and Policy Center has compiled the data on low wage, mid wage, and high wage workers in California for the last 40 years.  The eye-opening inflation-adjusted, real wages are plotted below:

Apparently, progressive elitist policies only work for elitists and only hurt those the elitists claim they are trying to help.  Over 40 years, low wage workers in California were mostly worse off than they were in 1979 and only the recent expansion of the economy has managed to bring them to a very slight improvement over 1979 of 4%.  Mid wage earners have been very nearly flat in earnings per hour over this entire 40 year period.  The upper 10% of wage earners have done comparatively OK under California progressivism with a 43% real increase, though even this is only a 1.075% increase per year.

In comparison, the national real median personal income is:

Nationwide, real median personal income went up by 39% from 1979 to 2016 and it went up further in 2017.  This median national real income is not on a per hour basis, as is the data above on California workers.  However, in 1980 the average worker worked 38.1 hours a week and now the average worker works 34.4 hours/week, so one could multiply the gains in the national median income by about 1.1 for a comparison with the CA data above, though I am not doing that in the subsequent numbers I discuss.  If the national median personal income data excluded the population of California, whose population is about 12% that of the entire U.S., the increase would have been greater.  In fact, with some simple algebra one calculates that the median non-California worker's real income increased by about 44%, which means that outside of California, median income workers did as well as the top 10% of California workers did over the 40 years since 1979.  And that despite the fact that real incomes in many other states have also been held hostage to the sins of progressive elitist politics.

The wages of California progressive political sins are even worse than is suggested by this data.  The inflation adjustment on California worker wages is a national inflation rate, not a California cost of living adjustment.  California progressive politics has caused housing costs to soar.  Their regulatory state has caused costs on many businesses to soar as well and these costs have to be passed on to the people living in California.  State taxes are high.  The cost of living in California is about 13.4% above the national average, or about 15.2% above the national cost of living excluding California.

The California practice of suppressing individual rights has bad consequences for more than one's economic well-being, but the economics of it are bad enough.  Once again, I will remind my readers that economic growth rates are like interest rates, as they go up they have a most remarkable compounding effect on the size of the economy.  A rapidly growing economy makes a very much bigger pie to benefit everyone over a 40 year period, which is the time that most Americans have to look forward to before they die.  Many of us have even longer time-horizons for our concerns, since we have children and grandchildren we love and want to see flourish in freedom, prosperity, and security.

My youngest granddaughter just celebrated her first birthday.  If the national economy grows at a rate of 3% a year for the next 90 years, it will be 14.3 times as big as it is today.  Such growth rates are very achievable, if our governments do not excessively interfere with the private sector.  A 2% growth rate for 90 years yields an economy only 5.9 times its present size.  I expect the 14.3 times larger economy will have much more to offer my granddaughter as her life comes to a close than will an economy 5.9 times larger.  It might even offer her many more years of enjoyable life.  Of course, a real Progressive Elitist government outcome could be a negative growth rate or a 1% growth rate, where the latter economy in 90 years would be only 2.4 times the size of the present economy.

Contrary to the Washington Post, a Company Should Spend its Hard-Earned Income Based on its Own Judgment

The Washington Post's top of the Business Section article on Sunday, 16 December is headlined "How have corporations spent their tax cut windfall?"  Thomas Heath, the author, notes that many experts believe that corporations should spend the money no longer taken from them by force to build new facilities, buy equipment, invest in R&D, hire more employees, and pay their employees more.  Stock buybacks and higher dividends for stockholders are rather immoral and not in the spirit of the tax cut law.

You see, the government taxes a business, forcibly depriving it of the income it worked hard to earn in a competitive global economy.  The government thereby gains the moral right to expect the company upon the government's graciously deciding to take a bit less of the company income to spend that income according to the government's wishes.  Those wishes require that the company creates more and better jobs and does so in a way that is as obvious to the voters as possible.

What has become of the money that companies are now able to keep since the tax cut last year?  Business investment by Standard & Poor's 500 largest public corporations on new equipment and factories is up 19% in the first three quarters of 2018.  Research and development spending increased by 34%.  A Federal Reserve statistic shows that independent businesses in general increased business investment by 16% so far this year, which is the highest increase since 1993.  For years, capital expenditure by business has been very weak and productivity growth has been less than 1% per year.  Private sector employee average earnings are up 2.8% in 2018, after many years of stagnation under the Obama Regime.

The 2018 increases in business capital expenditures, R&D, employee earnings, and the expected increases in productivity should make Americans very happy.  Unless you are a Democrat socialist, in which case you bemoan the fact that stock buybacks cost companies $579 billion in the first 3 quarters of 2018.  This will set a new record for a year, replacing the record of 2007, just prior to the Great Recession.  Wisconsin Senator Tammy Baldwin says "It's just wrong for big corporations to pocket massive, permanent tax breaks and reward the wealth of top executives with more corporate stock buybacks, while workers are given pink slips and face layoffs."  Never mind that unemployment is at a record low, that millions of open positions cannot be filled with qualified workers, and that average employee earnings are up 2.8% this year.  Never, ever allow the facts to get in the way of a very emotional argument for the villainy of businesses.

The left also complains about the fact that dividends to shareholders this year will set a record previously set in 2017. 

There is a very unrealistic expectation in the criticisms of the Democrat socialists which we are not supposed to notice.  The management of a large corporation now able to keep enough of its earnings to contemplate building a new facility first has to evaluate a number of purposes for that facility, where it will be built, design it, get building and environmental permits, find and hire the people to build it, evaluate and purchase the equipment to put into the facility, and find and hire the people to be employed in the facility.  If you have just had a substantial change in the parameters under which your business operates, you are also likely to have to hire more managers to make all of these decisions and kick this whole process into gear.  How much of this process can be accomplished in the first 3 quarters of operations under the new tax conditions?

Consider R&D.  You have long been doing less R&D than your company should have been doing because too much of your company earnings were taxed away and the regulatory environment was too expensive.  During the Great Recession and the numbingly glacial recovery, you released many company scientists and engineers or did not expand their numbers.  Your company did not invest much in analytical equipment, your laboratories, the training of your technical experts, prototyping capabilities, and your forward-looking plans for R&D were scaled to your very modest means to do R&D.  Now conditions have changed.  You want to invest in R&D, but you have to figure out what directions to explore and develop with your greater R&D effort.  You consult with your technical people, make decisions on new directions based on evaluations of markets and technical possibilities, figure out what laboratory equipment is needed, evaluate the instruments available from vendors, prepare facilities for their installation, and hire more people to operate the equipment and to solve the technical problems.  By the way, the people with the brains, the dedication, and the training for these R&D tasks are hard to find.  What fraction of this process is likely to be completed within 9 months of a changed tax environment?

So, while your company is trying to become more productive and to offer new products and services, but is limited on the rate of its spending by these limits of time and resources, what do you do with your suddenly increased available funds?  Rationally, you use it for some combination of paying back debts, buying back stock, and offering improved dividends to your shareholders.

Not only is this rational from the company viewpoint, but it is hardly bad for the economy.  Lower company debt makes companies more able to weather future downturns and to minimize the layoffs of valuable employees when a downturn occurs, as they always will.  The buyback of stock, puts more money in the hands of investors who will then either spend that money or invest it in other firms that need that investment.  The increases in dividends help many investors to be able to spend more money in the economy and helps pension funds to be less unstable, as so many of them are.  To be sure, some of this money will go to foreign investors.  Some of these foreign investors will put their money back into US investments because our economy is about the best in the world.  Some will leave our economy.  But, if we suppose that money had been left in the hands of the government, what fraction of it would have been utterly wasted and gone to not only unproductive use, but to uses that cause our national productivity to have negative components?  Yes, the Democrat socialists believe that government spending is the Gold Standard for the good use of our money.  But you have to be loony to think that is the reality.

Did You Know that We Need Big Government to Protect Us from Walmart?

Walmart is the biggest retailer in the world, with $443.85 billion in sales in 2012.  It has 2.2 million employees.  It offers low prices to bring in customers for the goods it efficiently supplies.

The U.S. federal government can only tell us how many employees it had in 2011.  It had 4.403 million employees.  The state governments had 3.779 million full-time employees and 1.534 million part-time employees.  The local governments had 10.786 million full-time employees and 3.202 million part-time employees.  Each of these governments inefficiently supply services for which their customers are forced to pay.  They also produce copious mandates that the People are forced to obey. They command forced labor from employers and businesses for the convenience of government.  Federal, state, and local governments all produce mandates that Walmart must obey.  Federal, state, and local governments spent a mere $6.5 trillion out of the national GDP of $15.0 trillion (43.3%) in 2011. 

Now which of these would a rational person fear, Walmart or Government?  I fear Government, but Progressive Elitists fear Walmart!  Yes, they offer Walmart as a primary reason why we must have Big Government.

Why?  Well the story is that Walmart moves into a town or small city and offers goods at such low prices that they drive all other businesses that used to be in the town out of business.  Walmart pays its employees so poorly that they are in danger of starvation and poverty overtakes the town.  A minimum wage increase mandated by government is required to make Walmart pay a "living wage."  In addition, Walmart is killing American jobs because it brings many of its goods in from other countries.  Walmart is a monster, a very unethical killing machine!  Progressive Elitist after Progressive Elitist will use this story to justify Big Government, including MBAs from the Wharton School of the University of Pennsylvania and the Columbia Business School.

OK, let us ask a few questions about this story. 

When Walmart moves into a town, how does it find the manpower to open its store before it has driven all of the other businesses out of business and taken their employees away?  Does it not have to pay prevailing wages to induce those initial employees to work for them?  It is common for new stores to have tens of applicants for each person they can hire.  Yes, according to studies for every 100 jobs created at the Walmart store, in time about 50 retail jobs in other stores are commonly lost.  Yet this is a sizable net creation of jobs.

It is said that Walmart is evil for putting many other retail businesses out of business.  But all Walmart does is to offer products for sale at good prices.  It is up to the people who used to go to the pre-existing retail stores to actually choose to go to Walmart.  They are the ones who do not go to Joe's Grocery Store and Madeline's Clothing Store.  They have the option to choose to pay higher prices in those stores and support those who have long been in their community.  If anyone made unethical choices, would it not be these customers who had no loyalty for the original shop owners of their towns?

Of course, it is not always the case that these smaller stores were even doing their best to provide the lowest prices they could.  A few of them may have taken advantage of having little competition in the town for the kind of goods they sold.  Some of them morally deserved to go out of business in many cases.  No doubt others did work hard to provide the best service they could, but so surely did many a buggy maker, a stabler, a blacksmith, a wagoner, and a saddler when they were mostly put out of business by the advent of cars and trucks.  Logically, the Progressive Elitist claim would be that all car and truck makers and trucking companies were unethical in putting these older companies out of business.

On Black Friday, there were labor union organized protests at many Walmart stores.  They claimed that 825,000 Walmart employees make less than $25,000 a year.  This may be true, but many of them are likely part-time employees.  The majority of Walmart employees are full-time, which is actually unusual for retail stores.  The average full-time associate earns $12.81/hr. and the average employee (full and part-time) earns $11.83 per hour.  Walmart says that 99% of its employees make more than the minimum wage in their areas, which is highly at variance with the usual story told casually by the usual Progressive Elitist.

Walmart, in a McKinsey & Company study that George Will referred to in 2006, found that Walmart contributed 13% of all of the national productivity increase in the late 1990s, which held down inflation greatly and made Bill Clinton look good as President.  It accounted for $200 billion in savings on the cost of goods each year, which is surely a larger savings now that Walmart is even bigger.  George Will pointed out that the average Walmart shopping household makes less than the national average, so these cost savings go to these poorer households, doing them much more good than food stamps and earned income tax credits did for them then.  But as usual, one can count on the Progressive Elitist, who claims to champion the poor, to actually abhor anything that really helps the poor outside of a government dependency program.  They hate Walmart.

But, Walmart's business model depends upon these less affluent customers and those customers respond in droves by going to Walmart for its convenience and low prices.