Hi everybody- this a new blog, and I hope that occasionally I'll be able to provide some kind of an original insight into current events. I'll fill in the bio information when I have more time, but for now, suffice it to say that I'm a junior in high school in suburban Utah. I think that out of the 2300 or so blogs on this website, I am the only one with that distinction.
Anyway, the first thing that I thought of was how worried I am by the thought of Nancy Pelosi as speaker. It's looking like that might be a reality that we'll have to accept come November, and it worries me.
A couple of issues that she mentions in her "100 hours plan" in particular worry me. This woman apparently has no understanding of contracts and economics. She wants to raise minimum wage by more than 40%- from $5.15/hr to $7.25/hr. The problem with a minimum wage is that it is funadamentally price fixing. If labor is worth $7.25/hr, then that's what the going rate will be. Of course, the assumption behind legislating a minimum wage is that their are a significant number of jobs that pay less than whatever the new rate would be. One of the arguements against raising the minimum wage is that some of these jobs would be eliminated. According to this article, however, that might not be true. I've only had half a term of formal education in economics, so I have no way to evaluate it, and I'm going to go ahead and assume that these jobs wouldn't be eliminated. The next question, of course, would be to ask where the 40% pay raise for millions of workers would come from. The reality is that it would be passed on to consumers and stock holders, and basically become a form of welfare. In addition, companies would lose one of there tools in increasing worker productivity. In the research that I've done- mostly at fast food restaraunts and retail stores- virtually every company that would be affected by this starts employees at lower rates- say $5.50/hr- and then provides them with 25-50 cent raises as they become more experienced. If the minimum wage were to be raised, we need to realize that companies would no longer to be able to afford to reward productive workers. This would also punish people working minimum wage jobs who work harder than their peers. Indeed, creating a class of incentive-less minimum wage workers would be one step on the way to becoming this country. And realize that all this analysis runs against my own personal interest, as a high school student in search of a job.
Some people, of course, would make an arguement that more or less says that by virtue of being a human being you're entitled to a certain minimum wage. My response to that is that everybody chooses that minimum wage for themselves, and that in a booming economy like ours with unemployment in the mid 4's, people have the right to turn down job offers at below their minimum wage. On top of that, once a contract is established between an individual and a company, the government has no right to come in and change the terms of that contract.
Pelosi has also said that she wants to reduce the interest rates on student loans. I am very much in favor of education, and two years from now will be taking out student loans roughly equal to my family's annual income. I realize that education is the gateway to opportunity. Both my parents are teachers, both my grandfathers were professors, and one of them started a company that now provides early reading services to 400,000 students a day online. Finally, my grandmother started a pre k-12 independent school. I think that everyone should be encouraged to get as much education as possible. Despite all this, I'm worried by the mentality behind slashing interest rates on student loans. The interest is already tax deductible, and the terms of private loans given to students are generally quite favorable. (Although these loans are private, they are federally guaranteed and thus the interest rates are subject to regulation.) Again, just as with the minimum wage increase, Pelosi would be doing something that is good, without acknowledging that there are side effects. Although I'm not familiar with loans, my guess would be that in this case, the lost interest on student loans would be passed on to other people who withdraw loans- including home owners and and small business owners. So, although reducing interest rates would do good through encouraging people to get more education, my guess is that that effect would be marginal, and reducing rates would effectively result in a cash hand out to everyone everywhere with a student loan. Just like the minimum wage hike, this would benefit a narrow segment of the population, but do damage to the economy on the whole.
Pelosi gets strike three on her promise to try to negotiate lower drug prices for Medicare recipients. Can we say "price fixing"? Drugs are tremendously expensive to develop, and reducing the amount the companies can charge on some of their sales would have two effects: increasing prices for everyone else, and reducing the amount of capital that the companies would have availible to develop new drugs. Cynics would say that the companies already spend all their time trying to develop blockbuster drugs- ie Viagra- that make them cash, but spend relatively little time developing drugs that they can sell to fewer people. Thus, why shouldn't we cut into their profits? The problem with this, of course, is that the first drugs that would get cut from research budgets would be the lifesaving ones that the companies would now be forced to sell to Medicare recipients at reduced price. In fact, although I'm not sure on this, I don't think that Viagra is covered by Medicare, and drug companies would have more interest in developing these peripheral drugs.
When you add these economic points to the cynicism that she's shown- Democrats in the last congress voted the party line a higher percentage of the time than any other congress in 50 years- it becomes clear just how destructive Pelosi would be as a house speaker.