Letter 2 America for April 18, 2014

Dear America,

This is what's wrong with the CBO (Congressional Budget Office)...or at least one of the things.  I've mentioned before that it is compelled to base its reports on certain agreed upon accounting rules that may or may not be rational depending upon the occasion and your political orientation.  But also, any congressman can ask for a report from the CBO on legislative considerations.  In the instance that elicited this letter, someone asked what the increase to $10.10 in the minimum wage would mean in dollar terms for business and the government.  The report came back saying that it would cost business $15 billion, and government $1 billion.  Of course, if you do not consider the significance of those figures carefully, they support the conservative, generally Republican opposition to the increase.  After all, the Republicans have been saying since President Obama first publicized the administrations desire to see the minimum wage increased that such an increase would result in fewer jobs, which would be bad for the unemployed...at least by implication.  But that surmise begs all kinds of questions, which the report of the CBO doesn't.  It gets reported on the news dutifully, and it stands alone...without reproach, scrutiny or interpretive commentary.  It is just news, and thus, is prima facie credible.  But does it really mean just what the Republicans say, or is there more to it...and who is asking that question.  The answer to the latter is no one so far.  But as to the former, it doesn't mean what the Republicans would like it to mean.  It doesn't mean that business will be impaired in its altruistic attempt to create the jobs that we all need (feel free to infer cynicism in that remark).  It doesn't mean that consumers will pay a price without any off-setting or greater gain.  It doesn't mean that there will be fewer jobs in the long run, but if you listen to the Republicans over the next few days, I'll bet that that is what you will hear; another job killing Democratic initiative, they will say.  Booshwah.

In Seattle, the city has passed a $15 per hour minimum wage, after a recount by just 77 votes, but it did pass.  However, Alaska Airlines, which has a terminal at Seattle's airport, went to court to get a stay of execution regarding the law because, it claims, no municipality can impose a regulation on the companies that do business at its airport.  As a consequence, the referendum's mandated wage rate increase has been enjoined for the present while the federal court ponders the issue...presumably up to the Supreme Court...in other words, for a long time.  That in turn has led to discussion of the issue in the media, including the motivations of Alaska Airlines.  It turns out that the company made a $500 million profit last year, which raises the question of what role that wage increase would play in Alaska Airline's finances, if it would play any significant role at all.  There are four thousand employees of Alaska Airlines at the airport indirectly in the form of baggage handlers and the like who are employed by a contractor that does all that work for all the airlines that have terminals there.  Thus, Alaska Airlines would pay another company the difference in a new contract between them, not the employees themselves directly, and the difference in cost to Alaska Airlines and all the other companies that rely on this particular contractor would be about $10.4 million; that's .02% of Alaska Airlines profits if it were going to bare the entire financial burden itself.  But none-the-less, the company complains, as all conservatives do, that the higher wage will result in fewer employees to do the work because they will create fewer jobs.  But this is a classic case of the flaw in that logic.  If the amount of work remains the same and someone has to do it, that same amount of work has to be paid for one way or the other.  And if it has to be done by fewer employees, they will have to work more hours, some of which will have to be paid at overtime rates: time and a half.  For a $10 per hour worker, which is what the workers get paid now, that would amount to the same financial burden for the additional hours.  The savings might be minimal, but how much less than .02% could they be.

At the same time, there would be $10.4 million spent in the Seattle area by wage earners, which would create more jobs if Alaska Airlines just paid the increased wage along with all the other airlines who would share the financial burden.  That increase in commerce might well create only minimally more air travel out of Seattle's airport, but it would certainly would augment the economy of the area for the benefit of all...and as I am saying...with almost immeasurably small consequences for Alaska Airlines.  It probably doesn't amount to what the CEO gets in the form of a bonus every year, but I guaranty you that those 4,000 employees do a lot more work for the benefit of the company.

So, as in the case of Obamacare, which is suddenly being referred to as the ACA (Affordable Care Act) now that it looks like it is going to succeed after all, the discussion of the CBO's reports on the subject have to be considered in perspective.  The answer isn't always as simple as a total national dollar amount for one facet of the issue.  It's not that the CBO isn't to be trusted.  It is purportedly non-partisan.  But when the accounting rules by which it operates are skewed toward supporting a particular doctrine--the supply side theory in this case--the answer doesn't matter as much as the question does, and in this case, the query sent to the CBO was intended to prove a point, not to answer a legitimate question.

Your friend,

Mike