Minimum Wage Part VII: Powerball

Odds to win the Powerball: 

1 in 175,223,510 

(1.75 x 10⁸)

Odds to pick the ideal combination of public assistance programs among 126 federally funded programs: 

1 in 85,070,591,730,234,600,000,000,000,000,000,000,000 

(8.50 x 10³⁷)

Disclaimer:

Unlike the Powerball where one either wins or loses, there are many combinations of antipoverty programs that may produce results close to the ideal (normal distribution). While the Powerball analogy is imperfect, I hope it highlights the problem of choosing which combination to implement.

Michael Tanner cites 126 federal public assistance programs received $668 billion in 2011. Individual states spent an additional $284 billion dollars funding public assistance programs.

Updated spending from fiscal year 2014 estimates >$1400 billion were spent by the federal government on public assistance programs.

• Includes Social Security and Medicare
• Estimated $880 billion was spent on public assistance excluding Social Security and Medicare
• Source: Christopher Chantrill at usgovernmentspending.com

As detailed previously, I believe current poverty alleviation efforts, including minimum wage, are failing. See:

• Minimum Wage Parts I - VII
• Unemployment Assistance Parts I - VII
• Food Assistance Parts I - II
• Private Charities Parts I - V

To preface, I hold the following assumptions:

1. There is no perfect public assistance system
• All systems and approaches have benefits and drawbacks
2. One size does not fit all
• What works for one community may not work in another
3. Individuals have various definitions of success
4. Systems cannot replace individual integrity, character, or morality
5. One cannot have freedom without personal responsibility

With such an overwhelming number of choices before us, is there any way to increase the chances of selecting an ideal system? Going back to the Powerball, one can increase their chances of winning the jackpot by purchasing additional tickets.

The same mindset could be employed in choosing antipoverty programs. Rather than our current system of the federal government picking a single combination, what if local communities and states were free to choose their own combinations? This would allow for multiple "tickets" (or combinations) to be tried simutaneously thereby increasing the odds of finding a successful combination.

As prefaced, individuals have various definitions of success. I define success as citizens making well informed decisions through a fuller understanding of what they are sacrificing (schools, roads, law enforcement, etc.) to obtain additional public assistance provision.

To optimize the path to “success”, I support the handing of public assistance provision from the federal government to states, and ideally to local communities. Currently the federal government provides ~70% of public assistance funding and states provide ~30%. Seeing this reversed could serve as an initial benchmark. As I believe all systems have benefits and drawbacks, I see the following with making states and local communities the primary source of public assistance program funding:

Potential Benefits -

1. Local communities are unable to hide the true cost of public assistance programs through hidden inflationary taxes under the auspices of the Federal Reserve. 
• Communities and states are required to have a balanced budget or risk bankruptcy (Detroit). This enables elected officials and citizens to fully realize the true cost of public assistance funding (less funding to schools, roads, public services, etc.).
2. Multiple combinations/systems may be simultaneously implemented.
• As with purchasing additional Powerball tickets, by shifting the implementation primarily to states and local communities, we increase the number of systems being tried. The worst will be discarded and the best adopted by other communities.
3. Communities are free to tailor public assistance to their unique needs
• Moves away from the one size fits all approach
4. Local citizens have greater influence in the decision making process and their vote does not get lost in the ocean of millions of others.
5. Less political gridlock and red tape.
• Local officials have numerous political hurdles and barriers removed to pass reform.

Potential Drawbacks -

1. Some communities may have insufficient resources to adequately fund public assistance programs
• I believe this was a greater concern when relocation and transportation was more difficult. Please see Private Charities Part V for additional information.
• I also suggest this may result in a spreading of assistance as those in need would relocate to areas with greater assistance and decrease the rise of impoverished communities.
2. Increased costs
• Centralizing and standardizing processes typically leads to decreased costs (especially administrative costs).
• I would suggest the increased costs may lead to greater effectiveness for the reasons cited above.

Increased complexity

• Our current public assistance system is already extremely complex. Decentralizing and removing current standardization will likely increase the complexity of antipoverty systems, especially if one chooses to relocate to another location.
• As with increased costs, I would suggest overall effectiveness has been sacrificed to reduce complexity.

Increased risk for corruption

• Local communities may have fewer safeguards in place to prevent the abuse and misuse of public funds compared to a federal system.
• I would suggest while the frequency of corruption may be higher, the rewards would be much less. No longer would all the eggs be in one basket.
• In addition, local communities would be able to more quickly vote corrupted officials out of office compared to the sluggishness of the federal government.
• Again, systems cannot replace individual integrity, character, and morality.

This concludes my series on minimum wage. While I do not believe minimum wage accomplishes its intended goal, I applaud the cities of Seattle and Oakland for exercising their freedom to increase their precinct’s minimum wage without waiting for the federal government.

As the original founding fathers and colonies supported, I believe the potential benefits of a limited central government emphasizing individual freedom rather than forced support outweigh the potential drawbacks. I leave you with the position statement of the Republican Liberty Caucus whom I believe summarize this view well:

• WHEREAS libertarian Republicans believe in limited government, individual freedom and personal responsibility; 
• WHEREAS we believe that government has no money nor power not derived from the consent of the people; 
• WHEREAS we believe that people have the right to keep the fruits of their labor; and 
• WHEREAS we believe in upholding the U. S. Constitution as the supreme law of the land;

Be it resolved the Republican Liberty Caucus endorses the following [among its] principles 5.0 Welfare:

• 5.1 The US Department of Health and Human Services should be abolished, leaving decision making on welfare and related matters at the state, local or personal level. All Americans have the right to keep the fruits of their labor to support themselves, their families and whatever charities they so choose, without interference from the federal government.

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Minimum Wage Part VI: Blind Dart Throwers

While blindly throwing darts at moving targets may make for an exciting (albeit dangerous) personal hobby, it is a destructive practice the federal government uses when enacting anti-poverty programs.

Success is frequently ill-defined and continually redefined. Such ambiguity creates a moving target politicians haphazardly throw poverty reduction programs at, often resulting in collateral damage.

In 2012, Michael Tanner with the CATO Institute found the federal government alone has at least 126 anti-poverty programs. Furthermore, Robert Rector and Rachel Sheffield with The Heritage Foundation found since 1964, $22 trillion have been spent on anti-poverty measures by federal and state governments (2012 dollars). Furthermore, this $22 trillion excludes Medicare, Social Security, and measures such as minimum wage which is primarily paid for by consumers rather than direct government expenditures.

That’s a lot of darts… Especially considering $22 trillion is more than 3x the amount of money (clearly not human life and disabilities) of all military wars in U.S. history since the American Revolution in 1775.


Today, minimum wage is the anti-poverty drum of choice. Following Tuesday's elections, four states (Alaska, Arkansas, Nebraska, and South Dakota) easily passed legislation increasing minimum wage. It is anticipated more states, cities, and perhaps the nation will follow.

Please read previous posts for a complete understanding of why I see a need for alternatives to minimum wage legislation:

• Minimum Wage Part I: For and Against
• Minimum Wage Part II: Cited Effects
• Minimum Wage Part III: American Samoa, The Face of Minimum Wage, and Sound Cited Effects
• Minimum Wage Part IV: Uncle Rico, Buzz Lightyear, and Questionable Claims

Disclaimer: I have moved from minimum wage to poverty alleviation efforts as I believe minimum wage proponent’s actual desire is to eliminate poverty and increase prosperity rather than to simply see wages rise. Proponents desire an increase in standards of living which they see being achieved through wage increases.

In the midst of a multiyear recession, the call for poverty alleviation resonates loudly. While I desire increased long term prosperity for all (Part I), I believe minimum wage has few benefits to those it is intended to help (Part V). Having a lack of faith in minimum wage, my search for alternative poverty alleviation measures yielded numerous other programs including: 

• Earned Income Tax Credit (EITC), Child Tax Credit (CTC), negative income tax, guaranteed basic income, public work programs, public funded training/education programs, targeted credits/subsidies (food assistance, housing assistance, medical assistance), private charity efforts, and others.

Of the many poverty alleviation programs, is there an ideal program or magical combination that will lead to success? Is there a way to discover what program(s) to promote other than blindly throwing darts at a moving target? I encourage you to read the books How Helping Hurts and The Tragedy of American Compassion for further insights into reducing poverty.

It is said the poor will always be with us. Will we choose to continue the status quo of hundreds of programs and trillions of dollars with limited success? Or will we choose to change our approach to poverty? Next post, I will share my convictions on how to improve our approach to reducing poverty.

Next Post: Minimum Wage Part VII: Chaos in the States

Minimum Wage Part V: The Titanic Meets Minimum Wage

The majority believed the Titanic was unsinkable. The majority also believes the potential benefits of minimum wage outweigh the potential drawbacks. Will minimum wage, like the Titanic, hit a proverbial hidden iceberg causing grave injuries?

• Disclaimer
• The Titanic was a sudden tragic disaster. It is not my intent to diminish or minimize the catastrophe in any way. I am suggesting a similar, albeit slower and less grotesque, tragedy of pain and suffering is occurring to millions of individuals and families struggling to persevere through America’s Great Recession.

After detailing cited effects of minimum wage legislation, it is time to contemplate the question of who benefits and who is harmed by minimum wage laws.

Please do not short circuit a thorough understanding of minimum wage effects. It is important you understand why there is support and opposition to increase the minimum wage. Much has been written about the perceived effects of minimum wage and Part II includes a list of articles: 

• Minimum Wage Part I: For and Against
• Minimum Wage Part II: Cited Effects
• Minimum Wage Part III: American Samoa, The Face of Minimum Wage, and Sound Cited Effects
• Minimum Wage Part IV: Uncle Rico, Buzz Lightyear, and Questionable Claims

Prior to any discussion, it is critical to understand the assumptions thoughts are built upon.

• Assumption #1: Minimum wage has been set above the market wage in certain occupations
• A minimum wage below market wages has no effect. For example, applying a minimum wage of $10 an hour to neurosurgeons will affect nothing. (other than wasting tax payer resources paying officials to enact a useless law)
• Assumption #2: Long term, sustainable growth is preffered
• Prosperity can also be short circuited resulting in immediate gains at the expense of long term, sustained growth and prosperity.
• Assumption #3: I am for increased prosperity for all (including equal treatment of all ages, genders, race, income status, etc.)

Who Benefits?

1. Politicians
• Gain votes by giving people what they are asking for (minimum wage) instead of what they truly desire (increased prosperity).
2. Foreign Countries
• Increasing production/service costs at home increase the competitiveness of other countries who enter the market (China, India, Mexico, SE Asia).
• Tariffs are the next peddled action, but tariffs hurt all of America by forcing us to buy higher priced, poorer quality goods and services (in terms of subjective value).
3. Some low wage workers
• Benefits workers who receive a wage increase who otherwise would not have (assuming their work hours are maintained)
• Macpherson and Evans found ~2/3 minimum wage workers received a raise within one year. Thus ~1/3 of low wage workers who retain prior levels of employment and hours may benefit from minimum wage increases after 1 year.
• These findings do depend on the level minimum wage

Who is Hurt?

1. Middle class
• Receive none of the benefits (increased wages) yet pay a large share of the costs (higher product and service costs). A double whammy.
2. Low wage workers
• While some will benefit, more will find it increasingly difficult to find long-term employment (see Part III).
• Companies will choose to take business overseas 
• Some find this unpatriotic, however often the choice becomes move the business or go out of business. I’m not sure it is patriotic to shut down business entirely.
• Low wage workers will bear the brunt of increased consumer prices. They both consume a greater percentage of low cost goods and services compared to the middle and upper class, and have less discretionary income to cover the increased costs.
3. Upper class (least affected)
• While they will pay increased consumer costs, they consume less low end products than the lower and middle class. In addition they are able to withstand increases in consumer prices more than low and middle class workers due to greater incomes.
4. Domestic Producers
• Less able to compete in the global marketplace
5. Economy
• GDP will likely fall due to less production occurring at home secondary to businesses moving operations to foreign countries.
6. Law abiding citizens
• Favors under the table cash payments which hurts job prospects and increases the tax burden of law abiding citizens.

Good intentions have no guarantee to produce desired outcomes. While I believe many passionate and well-meaning individuals support increases in minimum wage, I believe it will fail to produce their desired results. 

As some Titanic passengers found safety in lifeboats, some will escape increases in minimum wages unscathed. However, I believe more will find themselves fighting for economic survival rather than floating safely in a lifeboat.

Next Post: Minimum Wage Alternatives