crossing the border

[calimac]

The word appears to have gotten out in the SF community that Borderlands Books in San Francisco will be closing. This has been a first-rate SF specialty store for some years, and the closing will be a major loss, as well as removing one of the two reasons I like to go to the Mission (the other is for a burrito).

I had errands at the UC Berkeley library on Tuesday - immense struggles with inadequate instructions for the scanner/printer system that's replaced photocopiers - so I came home by way of the City and stopped by the store. Since I don't get to the area very often when there's time, this might be my last visit, though I hope not. Alan was there, so we chatted a bit. He said nobody is allowed to be sadder than he is. In response to the e-mail's notice that updates will be frequent, I said that not only do I want to stay on the list, but if he or Jude do get involved in another bookselling project in the future - like the non-profit foundation pipe dream Alan has - I want to know about it. I bought some books, then went to the attached cafe to browse them over a biscotti.

The reason for the closure is particularly distressing. The City's new higher minimum wage law squeezes the profits too much in an already-precarious line of business that can't effectively raise its prices.

This is what conservatives have been warning about regarding minimum wage increases: that they will force businesses to cut back jobs or even close. Liberals respond that this is counteracted by the additional money pumped into the economy by giving workers more to spend as consumers, enlarging the market and allowing businesses to grow. My understanding is that practical experience has generally proven this second argument to be true.

But that doesn't mean it can't have unfortunate individual effects. It's worth remembering that, even though Alan says he's an unusual case and that the wage law is probably a good idea.

Comments

[whswhs.livejournal.com]

That particular liberal argument never made any sense; it's more of a "just so story" of macroeconomics. Megan McArdle, for example, went through the version of it about Henry Ford and pointed out that even if Ford's workers had spent all their extra pay on buying automobiles, they couldn't have bought enough of Ford's output to cover the cost of their added pay. And fast food workers spend their paychecks on things other than fast food; the money doesn't all come back to their employers. This seems to be a liberal version of the "rising tide floats all boats" argument that conservatives sometimes use to argue for quite different policies. (There is a different argument based on the belief that market economies are vulnerable to underconsumption, which was the basis of a lot of Keynes's ideas; Keynes's rejection of Say's Law, whether or not it was justified, was not a "just so story." But Keynes was arguing at the macro, statistical level of the economy as a whole, not at the level of individual businesses and the outcomes they experience.)

The more striking argument is the statistical one: That states that have higher minimum wage don't have higher unemployment than adjacent states that have lower minimum wage. That result is somewhat unexpected in terms of the standard microeconomic analysis of legally imposed maximum and minimum wages and prices that criticisms of minimum wages have traditionally relied on. In terms of San Francisco's minimum wage increase, though, I would note that those earlier studies were done on fairly marginal boosts in minimum wage, commonly something in the range of a dollar increase, say between 10% and 20%; going up to $15, as I believe San Francisco has, is a multiple-dollar increase, between 50% and 100%, and the effects of such large increases are statistically unexplored and could be surprising. Of course over the next three years we'll learn more about such things, now.

[kalimac.livejournal.com]

Here we have the libertarian persistence in sticking to theory even when admitting that, empirically, it doesn't work.

In your first paragraph you dismiss the very argument that in your second paragraph you admit works. The reason is that there is more in macroeconomics than exists in your philosophy, Horatio. Or in McArdle's. She can argue all she likes that Ford's workers couldn't afford his cars and make Ford money, but the fact is that they did buy his cars (and those of other Detroit firms) and that his firm was successful. Something got left out, just as in the legendary study that supposedly claimed that bumblebees couldn't fly.

I don't see what's a "just so story" about the liberal argument. That dismissive line ignores that's what's really at issue here is two narratives, a conservative one which empirically fails, and a liberal one which - as you note in your second paragraph - succeeds. The liberal argument prescribes an input - higher minimum wages - and correctly predicts an output - restrained unemployment and a workable economy. And the mechanism described is straightforward.

[whswhs.livejournal.com]

The argument, David, is, "Here is an observed phenomenon. Here is a theoretical explanation that obviously cannot be right, because there is no way the numbers can work out. Therefore there must be some other explanation." Anything I said about what that explanation might be would be only speculative.

[kalimac.livejournal.com]

You are wedded to a theory that does not conform to the facts. It's the theory that's wrong, not the straightforward connection between the input and the output.

[whswhs.livejournal.com]

We don't yet have the facts about the massive increase in minimum wage San Francisco has just enacted, not least because the full increase doesn't kick in immediately. Statistical evidence from smaller increases may not generalize; predictions based on it are at best plausible speculations. Get back to me when the full $15 an hour minimum wage is in force; at that point we'll have real evidence.

[kalimac.livejournal.com]

I'm not talking about San Francisco in particular. I'm talking about minimum wage increases in general. That was what my original paragraph was about, and that's what I've been discussing all along. The debate I outlined did not arise with San Francisco's law, but has been around for a long time, and it deals with minimum wage increases in general, not with any specific increase. And on that debate in general, the evidence is in. Minimum wage increases help, not hurt.

One reason Ford succeeded, that may have been outside the ken of the economic models that claimed this wouldn't work, is that increasing his wages actually _decreased_ his labor costs. How? By making his employees more satisfied, and therefore decreasing worker turnover and absenteeism (and it's verified that these things did go down), and increasing productivity
.
It's true that one thought experiment raised by conservatives has been, "What if we raised the minimum wage by an absurd amount, say to $100/hour?" And it seems far more likely that that would have negative effects. What remains to be seen is whether San Francisco's is a large enough jump to raise that problem, or, more likely, that the differential between it and surrounding areas will raise it. But I was speaking of the minimum wage in general.

[whswhs.livejournal.com]

I was not even suggesting that the prediction was "Ford's approach wouldn't work." In fact McArdle's article discussed exactly that source of advantages to Ford, including the more specific point that employees who have a job that pays really well may also be strongly motivated to perform well so that they can keep that high pay—though that particular effect is weakened if pay is high everywhere. My point was specifically the theory that Ford succeeded by having his workers use their high pay to buy his cars; I consider that to be no better than folk economics.

As to raising the minimum wage, you make extensive claims in your first paragraph, for the benefits of minimum wages, that you then take back in your third paragraph, with your concession that we don't know if San Francisco's increase is high enough to cause problems that were not evident with the much smaller boosts that have been the focus of previous statistical studies. But that latter is the only point I was making: That we don't know if that big an increase in minimum wage is damaging to employment, because we haven't tried it yet. It rather seems as if we are saying the same thing—but in the sense of the old joke about the optimist, the pessimist, and the glass of water.

[kalimac.livejournal.com]

You wrote that McArdle said that " they couldn't have bought enough of Ford's output to cover the cost of their added pay." According to my understanding of the English language, that is most emphatically a statement that "Ford's approach wouldn't work." But it did. And they did buy his cars. Try, during the heyday of Ford, parking in the Ford employees' parking lot with any other car than a Ford.

I did not take back in my third paragraph what I said in my first. The argument I'm refuting in the first paragraph (and all the way back to the original post) is the very common conservative one that ANY increase in the minimum wage AT ALL will have the effect of depressing employment. In fact they argue that we should decrease it, or eliminate it altogether, in order to boost employment and the economy. I would be very surprised if you didn't know that this is the argument.

To say that I'm contradicting myself by saying that this might happen in extreme cases is taking the same fallacy as the conservatives who claim that the climate scientists are contradicting themselves by saying that too much carbon dioxide is poisonous, when small amounts are not.

ETA: However, the point of that paragraph (in my initial post) is just to set up the basic fact that the liberal interpretation of minimum wage increases is correct. The _larger_ point (covering the last three paragraphs as a whole) is that that's not the whole story, because if it were, Borderlands would not be closing. We need to think more seriously about impacts. Alan's suggestion is that small businesses should have been exempt, as they are, for instance, exempt from employee health-care coverage mandates. That's one idea. Yours is that the wage increase should not have been so steep. That's another idea. Those advance the discussion. But we don't advance the discussion by calling the basic, proven fact about minimum wage a "just-so story", or by citing scholars whose divorce from reality extends to claiming that Henry Ford couldn't have done what he manifestly did.

[whswhs.livejournal.com]

If you care, here is an excerpt from what McArdle actually wrote (http://www.bloombergview.com/articles/2015-02-09/living-wage-gets-last-word-in-san-francisco) today about the bookstore closure:

We tend to talk about things like minimum-wage laws as if everyone will be affected similarly. In debate, we posit a mass of "minimum-wage workers" and a mass of "employers," then find congenial examples to stand in for these undifferentiated masses. But, of course, that's not how markets work. Effects don't get evenly distributed across the whole group; we see the biggest effects at the margins.

Some businesses will basically be unaffected by the new rules; they'll simply raise prices, the tech yuppies will pay more, and their workers will take more home in the pay packet. Other businesses will adjust by using less labor or taking fewer profits. Still others won't be able to adjust, and they will go out of business entirely. Some workers will get fatter paychecks and be better off, while others can't get a job or get enough hours and are worse off. You can't really aggregate all these occurrences into some neat "average benefit."

[kalimac.livejournal.com]

Fine; that's the point I was making in the original post, which is that even if the average benefit is good, the individual effects can be bad.

That makes the conservative position twice wrong: it's wrong in saying that the average benefit is bad, and it's as mistaken as any liberal panacea is in collapsing everything into the average benefit.

[irontongue.livejournal.com]

Paul Krugman has written about some major goofs on Megan McArdle's part when she discusses economics.

The Borderlands story hit The New Yorker last week, in their on line edition; I think the story will be printed this week. It is also in You've Cott Mail, a widely-read daily newsletter covering arts world business and economics issues.

You've Cott Mail linked to http://www.artsjournal.com/worth/2015/02/minimum-wages-in-the-cultural-sector-the-case-of-borderlands-books/

NYer: http://www.newyorker.com/business/currency/minimum-wage-dilemma-san-francisco