Economically Ignorant In Seattle....And Washington

Step 36 from our book, “Love My Country, Loathe My Government” makes the case that no newly elected politician should be able to make any decisions or vote on any legislation until they pass a basic, fundamental course on economics and economic theory. Current Washington politicians have recently been quoted in publicly stating that the island of Guam could tip over in the middle of the Pacific Ocean, that the Constitution is over 400 years old, whether a NASA mission to the surface of Mars would be driving by the place where Neil Armstrong walked, and other idiotic things. They are the last people you would want making economic decisions for you, never mind making any kind of decisions for you.

But let’s stay with economic matters today. We are currently living through the worst, the weakest and the lamest economic recovery from a recession in at least the past hundred years. And it was the weakest despite the following positive conditions that should have made it a boom time for the country’s economy:

• The Federal government borrowed and spent over $800 billion on a so-called economic stimulus program that stimulated very little and which ended up wasting untold billions of dollars on idiotic programs and projects.
• The Federal Reserve Board pumped TRILLIONS of dollars into the economy based on no underlying wealth to justify the printing of this money.
• We are living through an energy revolution in this country that is resulting in reduced energy costs, a reduction that should be spurring spending and economic growth throughout the country.

Despite these tail winds, the politicians still botched the recovery. We still have a record number of Americans who have been now classified long term unemployed, we still have over 45 million Americans who need Federal food assistance every month, more than at the beginning of the recession which ended five years ago, median household income has declined steadily since AFTER the recession ended, and a myriad of other economic distress. 

It is obvious that most American politicians have no idea how an economy works and how to implement programs and policies that facilitate economic growth. Most have never operated a business of any kind and are aware of the challenges such an endeavor poses from a profitability perspective and customer behavior viewpoint.

Which gets us to today’s main topic, a pending substantial hike in the minimum wage in the Seattle metro area. Local politicians there decided that it would be a good idea to hike the minimum wage in that area to $15 an hour, creating what they branded as a “living wage.” Noble sentiment, terrible thought since they really had no clue of how their local economy worked and what this wage increase would do to local businesses of all types.

Randy Desoto, writing for the Western Journalism website on March 16, 2015, highlighted what their ignorance of life and business reality is resulting in:

• Even though the minimum wage hike is not in effect yet, Seattle Magazine asked the question, Why are so many Seattle restaurants closing lately: Last month—and particularly last week— Seattle foodies were downcast as the blows kept coming: Queen Anne’s Grub closed February 15. Pioneer Square’s Little Uncle shut down February 25. Shanik’s Meeru Dhalwala announced that it will close March 21. Renée Erickson’s Boat Street Café will shutter May 30 after 17 years with her at the helm…What the #*%&$* is going on? A variety of things, probably—and a good chance there is more change to come.
• The obviously and simple correct answer is that these popular and long term viable businesses are no longer viable because their increase in the wage line of their business overwhelmed their ability to make a profit.
• Anthony Anton, president and CEO of Washington Restaurant Association, gave the Seattle Magazine a short lesson in restaurant economics: “It’s not a political problem; it’s a math problem.” He says that restaurants typically have a budget breakdown of about 36 percent for labor, 30 percent for food costs, and 30 percent to cover operational costs, all of which leaves leaves a meager 4 percent for a profit margin. When labor costs shoot up to say 42 percent as a result of the minimum wage hike, something has to give in order for the business to stay in business.
• Now, restaurants could cut food costs which would likely result in a decrease in product/meal quality which would eventually reduce customer demand which would eventually force the restaurant to close, simple economics.
• Restaurants could cut staff but that would likely result in poorer customer service which would eventually reduce customer demand which would eventually force the restaurant to close, simple economics.
• Restaurants could raise prices but that would likely push some of its customer demand to other less expensive options, including eating at home, further reducing revenue and profits,simple economics, in this case price elasticity.
• Or restaurants could simply close because they could nolonger make a profit, destroying jobs and economic growth in the process.
• In economic language, the Washington Policy Center explains the theory: When prices rise consumers seek alternatives, a behavior economists call the “substitution effect,” which results in lower demand for the higher-priced product. In the case of restaurants, consumers have access to the ultimate substitution – they can stay home.
• Rather than growing their business and focusing on customer service, the $15 minimum wage change, according to a spokesman for the Washington Restaurant Association told the Washington Policy Center, “Every [restaurant] operator I’m talking to is in panic mode, trying to figure out what the new world will look like.”
• This should come as no surprise since earlier this year Prop 1 made a $15 minimum wage mandatory for those working in parking garages and hotels near Seattle-Tacoma International Airport (SEATAC). 
• A NW Asian Newspaper reporter asked a local cleaning woman who also did part-time work as a banquet server in a hotel near SEATAC, what she thought of the new law: “It sounds good, but it’s not good. I lost my 401k, health insurance, paid holiday, and vacation. No more free food [from the hotel]. No more overtime and I have to pay for parking.”
• Thus, the good idea of raising the minimum wage required those employers, including non-restaurant employers, to cut other expenses to stay in business and stay profitable, which in turn found its way down to cutting the benefits and expense savings of those that got a wage hike, possibly leaving them no better off than before and possibly worse off from an overall compensation perspective.
• The same reporter also interviewed a part time waitress at the hotel of what the higher minimum wage meant to her life: “Yes, I’ve got $15 an hour, but all my tips are now much less,” likely because the meals are more expensive and customers have a set budget to spend on eating out, that pesky price elasticity curve and reality again.
• Before the new wage law was implemented, her hourly wage was $7. But her tips added to more than $15 an hour. And she used to receive free food and parking. Now, she has to bring her own food and pay for parking.
• The Seattle Times reported that a Clarion Hotel recently decided to close its full service restaurant (laying off 15 people) and also axed a night desk clerk and a maintenance worker. It also plans to raise its rates by 10 percent to offset increased labor costs.

Thus, through their economic ignorance, the local Seattle politicians’ solution to a perceived problem in their minds actually made the perceived problem worse:

• Fewer jobs for employees.
• Less overtime for employees.
• Loss of non-wage benefits and compensation for employees.
• Stress on both business owners and employees.
• Loss of traditional and profitable local businesses.
• Distraction of business owners from operating and growing their businesses.

These are simple economic principles to grasp but their simplicity is obviously beyond the comprehension of local Seattle politicians. Look, I wish everyone had a great wage and income. But mandating it from above via the political process never works for any problem including economic ones.

Ways to get wages growing again is to fix our failing public education system to get the high paying skills embedded into our kids today and tomorrow, substantially reduce unneeded over-regulation of businesses which would free up business resources now required for government compliance vs. customer service, reduce unnecessary government spending to reduce the tax burden on both employees and employers, and generally get out of the way of the job producers and the risk takers that grow the economy.

This is just Seattle. Imagine how destructive the same type of people can be in Washington. These are the same people that brought us the following costly economic disasters with no societal benefits in return:

• Cash for Clunkers.
• Cash for Appliances.
• Non-existent “shovel ready” jobs.
• Dozens of failed alternative energy investments that cost taxpayers tens of billions of dollars.
• The real estate bubble fostered by and financed by the two Federal government mortgage giants, Fannie Mae and Freddie Mac.

The same idiotic economic strategies and mentality failing in Seattle are also failing in Washington. Thus, two steps are needed to avoid future disasters:

• First, make sure the political class truthfully shows us up front what the entire economic picture looks like for any government economic endeavor so that it can get a good public airing, review, thrashing, and vetting before it is ever launched.
• Second, in order to get a good program and strategy put together, implement Step 36 discussed at the beginning of this post requiring all Washington politicians to pass an economics proficiency test before being allowed to voted on any legislation.

Stupid is as stupid does, whether it is in Seattle or Washington when it comes to economic ignorance.

Our book, "Love My Country, Loathe My Government - Fifty First Steps To Restoring Our Freedom And Destroying The American Political Class" is now available at:

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