The Great White Melville

Herman MelvilleOn this day in 10 BC, Roman Emperor Claudius was born. Almost everything I know about him I learned from watching I, Claudius. So most of what I know is that he looked a lot like Derek Jacobi. But it does seem that the basic story is correct. Because Claudius limped due to a childhood illness, the family kept him out of public. As a result of this, he was spared from the family purges of Tiberius and Caligula. When the latter was assassinated, there were literally no other male relatives left alive. And not surprisingly, Claudius went on to be a pretty good emperor. He did have a lot of his enemies killed, but that’s understandable given that they were likely trying to do the same to him. And we are talking Roman emperors here. There is a lower standard for them than there is for real humans.

The great Italian Baroque painter Sebastiano Ricci was born in 1659. Welsh landscape painter Richard Wilson was born in 1714. Astronomer Maria Mitchell was born in 1818. Labor organizer Mary Harris Jones was born in 1837. One of the most interesting of the late Romantic composers Hans Rott was born in 1858. He went quite insane in his early twenties, was committed and died of tuberculosis at the age of 25. But just listen to his String Quartet in C Minor. It is amazing:

Mathematician Otto Toeplitz was born in 1881. Physicist Walter Gerlach of the Stern-Gerlach Effect was born in 1889. Comedian Dom DeLuise was born in 1933. Guitarist Jerry Garcia was born in 1942. And Jim Carroll was born in 1950. Here he is with his band doing “Lorraine”:

Folk singer Ramblin’ Jack Elliott is 82 today. Blues great Robert Cray is 60. Here he is doing “Smokin’ Gun,” which you probably know:

And Adam Duritz of Counting Crows is 49. He’s an amazingly great songwriter. I always think of him along with Mark Eitzel. What Duritz has that Eitzel doesn’t is the ability to be emotionally naked. Eitzel makes up for this by being funnier. Here is Counting Crows doing the sweet and funny “Mr. Jones”:

The day, however, belongs to the greatest failed novelist of all time, Herman Melville who was born on this day in 1819. I have mixed feelings about Melville. On one hand, most of his stuff is really difficult to read. It is so dense, there is no doubt that the man was trying too hard. On the other hand, he’s so interesting. It is really wonderful the way he integrates all of his various passions into his work. I wonder what his later writing would have been like had his great work been appreciated. As it is, he hardly wrote anything the last 25 years of his life. Regardless, it is sad that like many other great American artists, he was never really appreciated in his own country during his lifetime.

Happy birthday Herman Melville!

How Much Could McDonald’s Pay Workers

McDonald'sOn Monday, the Huffington Post published an article claiming that McDonald’s could double its wages and it would only increase the price of their offerings by 17%. So instead of a McDouble being $1.29, it would be $1.51. The understandable response to this was, “That doesn’t sound that bad to provide a living wage to McDonald’s workers.” It turns out that it isn’t quite so simple, but as you will see, I’ll show that it still works out about the same.

The original article was called “Doubling McDonald’s Salaries Would Cause Your Big Mac To Cost Just 68¢ More.” Unlike most news outlets, however, instead of just adding an update, they’ve replaced that article with a full discussion of what was wrong with the article. In the simplest terms, the whole thing was more or less a prank. A student at the University of Kansas did a back of the envelope calculation. McDonald’s entire employment costs are indeed only 17% of their operating budget. The problem is that most of the workforce costs are not due to the corporation but rather the 80% of all the stores that are franchises. Of these franchises, roughly a third of their expenses are due to workforce costs. So that $1.29 McDouble would cost $1.72.

But again, it isn’t that simple. Huffington Post quotes Dean Baker on two related issues. First: doubling wages would doubtless cause some layoffs. That’s not necessarily a bad thing. Increased work costs have a tendency to make employers more efficient in how they use their labor force. What’s more, the increased wages would attracted better employees. The second issue is more important. Increased labor costs are generally shared between increased prices and decreased profits—with profits getting hit twice as hard as the prices. (I talk about this all the time!) So if labor costs go up by one dollar, the cost will go up 33 cents and profits will go down by 67 cents.

If that’s the case, then a 33% jump in labor costs (double the current cost) would cause an increase in McDonald’s food prices of 11%. So our McDouble would go up from $1.29 to $1.43. That would be even better than the Kansas prankster suggested. But again: it isn’t that simple. I suspect that McDonald’s is already extremely efficient with a very low profit margin. So that rule of thumb 1-2 costs-profits number may be a little or even a lot optimistic. But it most certainly isn’t the case, as the Huffington Post now claims, that the price of McDonald’s food will go up a full 33%.

The real question here is not if McDonald’s can afford to pay all of its employees double the minimum wage. Strikers are asking for this, but it is clearly a negotiating tactic that President Obama would be smart to study. What all of this math shows is that McDonald’s could increase their pay rate. In fact, raising it up to $10 per hour would probably have a negligible affect on prices and business viability.

H/T: The Young Turks

Update (10 September 2013 10:09 pm)

Dean Baker did a much more careful analysis of this problem and found that fast food prices would increase by about 5%. It is very interesting and well worth reading.

Hummingbirds, Turkeys, and Hawks; Oh My!

The Emerald City of OzMatt Yglesias has a knack for great headlines. I subscribe to his RSS feed, but try as I might, I find it pretty near impossible not to click on his stories. Such was the case this afternoon when he offered up, Turkeys vs. Hummingbirds in Contemporary Central Banking. I really had no idea what he was talking about, but it turned out to be really simple. When it comes to monetary policy, people are broadly divided into hawks and doves. Yglesias thinks we should move the discussion to hummingbirds and turkeys.

Hawks are now and forever more worried about inflation. Doves, in the current economic environment, are not worried about inflation at all. Yglesias claims that there are currently no hawks because everyone knows inflation is not a problem. Oh grasshopper! That can’t be what he really thinks. There is literally a whole industry that does nothing but explain that inflation may be low now, but this could change instantly and we could be back in the 1970s—or worse. What’s more, there are huge numbers of people (admittedly, more on the margins) who claim that inflation is high, it is just an evil Obama conspiracy to trick us all to believe that inflation is low. Have you not seen what’s happening to the price of milk?! I’m sure that among the people who Yglesias trusts, it is the case that “we are all doves.” But in the policy debates, there are a hell of a lot of hawks and they are well connected and vocal.

The key point about hummingbirds and turkeys is their ability to fly. So Yglesias claims that turkeys are those who say that nothing the Federal Reserve can do will help the economy in the current situation. Hummingbirds believe that the Fed can stimulate the economy by raising inflation expectations. Here again I think he is wrong. There are some people—most notably Karl Smith—who are clearly hummingbirds but by and large everyone in the dove camp would probably qualify as “hopeful turkeys.”

Let me explain where I’m at in this discussion. I’m as close to a turkey as one can get. Control of interest rates are at least 90% of the power of the Federal Reserve. Those rates are now effectively at 0%. I don’t think there is much the Fed can do. But I don’t know this for sure. So the Fed should be doing everything it can do. There is a way this can work. It’s all about expectations. If people saw the Fed acting aggressively to stimulate the economy, it might convince people that things really would get better and so inflation would increase. The point is that I don’t think turkeys can fly but they might. (A better analogy would be chickens which can get off the ground but can’t really fly.)

I think it would be more correct to say that there are three types of people when it comes to monetary policy. First, there are hawks who just know that inflation is already terrible or will soon be. Second, there are turkeys who think inflation cannot be affected by the Fed. And third, there are hummingbirds who think that the Fed can get the economy back on track all by itself. As far as I’m concerned, hawks and hummingbirds are faith based communities. Meanwhile, the poor continue to suffer and the Fed does as little as it possibly can.

Who Cares Fake Scandal Hurt IRS?

Scandal?!The video below is from the Democrats on the House Oversight Committee. It makes fun of Darrell Issa and his minions for all their hysterical (and untrue) allegations that the White House had requested the IRS to go after Obama’s political enemies. Of course, there was nothing to this.

The video shows very clearly what Issa and others were saying and how it all came to nothing. Remember Fox News claiming that the IRS scandal was worst than Watergate? That was pretty typical. The video very smartly starts with a clip showing Darrell Issa saying that the IRS was targeting Obama’s “enemies.” Then it ends with Issa making what I guess is a technically true point that he never said it reached the White House. But it is clearly disingenuous because he couldn’t have meant anything else. Anyway, the video made me laugh:

What I think is important is that from the very beginning it was clear that this wasn’t a White House scandal. All that seemed to be going on at first is that some overworked IRS employees tried to simplify their work by targeting Tea Party groups because they were, after all, political groups that really shouldn’t have been granted 501(c)(4) status. But even that allegation fell apart quickly.

Here’s the thing. Liberals should not be focused on protecting the president. The IRS is a far more important liberal institution, and it needs to be protected. This whole scandal has made the IRS look really bad even as it is now clear that no wrongdoing occurred. The IRS was dragged through the mud for months but most liberals don’t even want to try to fix some of the damage. Now we know that Lois Lerner—the head of the tax-exempt organizations division of the IRS—had done nothing wrong when she took the 5th Amendment. Most likely she figured that she could count on the same level of support as the White House gave to IRS chief Steven T. Miller. That is: none.

This is more of the same from the Democratic Party. As a group, we are not loyal. And as members of that group, we know it. The IRS is always an easy target for the conservatives, even though they depend upon it even more than liberals, because the things conservatives want the government to do are expensive. As a result, the IRS continues to be under funded. And scandals like this just add ammunition against an institution that does a thankless job as well as it can possibly be done. The president doesn’t need any more liberal defenders; he has an army of them. The IRS does need defenders because there are damned few of them. And there are apparently none at all in the White House or Democratic caucus on the House Oversight Committee.

H/T: Steve Benen (Who is one of the Obama defender army.)

Defining GDP Up

Bureau of Economic AnalysisYesterday, Jared Bernstein and Dean Baker published a great OpEd in the New York Times, What Is Seinfeld Worth? The Bureau of Economic Analysis (BEA) recently made a change to how GDP is calculated and quite suddenly, the American economy is $560 billion bigger. That’s 3.6%. So the question is: what are you going to do with your extra $1,800 this year?

As you’ve probably already figured out, not only are you not richer than before, America isn’t richer than before. The BEA is just calculating GDP differently. Now it is treating intellectual property—like Seinfeld—as productive tools like an auto assembly robot. So every syndicated episode of a TV show is a new product. Ca-ching! Don’t you feel richer now?!

Bernstein and Baker don’t really get into what this means regarding copyright, but it is implicit in their argument. They note the fundamental problem with the GDP calculation (old or new) is that it only adds things; it never subtracts them. They write, “If we use hydraulic fracturing to reach deep pools of natural gas and in the process pollute groundwater, we will count only the value of the gas. There is no subtraction for the polluted groundwater or the greenhouse gas emitted when the gas is burned.” This relates to copyright because the laws have many downsides. But according to the BEA: it is all upside.

Related to this is the fact that so much of our entertainment content is not monetized. And therefore it is not part of our GDP. Clearly, if you are reading this it is of some value to you. And it isn’t just me. The same is true of the New York Times. Although the site is monetized, as a going concern, the BEA thinks its archives are valueless.

Of course, none of this matters. Bernstein and Baker note, “Over this recovery, real GDP is up 9 percent, while the typical household’s income is down 4 percent.” And we all know this. For the last three and a half decades we have seen pretty much all of the productivity growth go to the wealthy. So only the really old even remember the days when one’s own salary was tethered to productivity growth. So I guess it doesn’t much matter what the BEA does.