Fast Food Wage Protests Signal Very Real Labor Unrest
It is somewhat expected given these contentious economic times that protesting minimum wage workers would attempt to close down the very business that at least gives them some shot at earned income. In Detroit, of all places, an otherwise nondescript fast food establishment trying to survive on the famous "8 mile" becomes fodder for national debate. Despite what policymakers and authorities claim about an "improving" economy, particularly seen in the ever more dubious Establishment Survey, the fact that there exists an even limited nationwide effort to force an increase in the minimum wage is tantamount to a widespread, though unseen, undercurrent of labor unrest. Whenever economic growth and inflation, however defined, are existing threats to Americans, regardless of statistical measurements, there will be an undue emphasis on income equality and minimum wages.
In a public poll from the end of July, Rasmussen notes that 77% of adults say they could not live on the minimum wage, while 61% favor a large increase in the rate. It is a dubious proposition in the first place, as it is lack of opportunity that leads to increasing resentment, particularly toward what is sometimes referred to as the rapacious pursuit of profits. When the economy functions as it should, hardly anyone notices as the rising tide truly does lift all boats, leaving the overwrought desperation for obvious government interference drowning. But obvious government interference is not the only problem in the economy.
Not too far south of Detroit, the "rust belt" city of Dayton, Ohio and its suburban neighbors struggle with the same kind of pressures. Dayton was a once prosperous city, very much like Detroit, built on the innovations and industrial prowess of the late 19th and early 20th centuries. John Henry Patterson created one of the behemoths of the day in the city, National Cash Register, that drove not only economic growth in Dayton and Ohio but advanced the global course of business.
The roster of NCR executives is as impressive, if not more so, than what we saw of Silicon Valley in the 1960's and 1970's. From Thomas Watson (who would later turn a taciturn and foundering Computing Tabulating Recording Company into IBM) to Charles Kettering (who would leave NCR to found Delco, and become the research engine and genius behind General Motors' ascent), there was business glory and wealth to be had in Dayton. The wellspring of innovation and business acumen translated easily into the kind of wealth and affluence common in many industrial cities of the first half of the 1900's.
In 1965, Rouse Corporation, one of the largest and most well-known property developers of the time, began constructing the first indoor mall in the Dayton area, a reflection of economic optimism not unfounded by the areas' industrial base. The next year, the Salem Mall opened with 60 retailers anchored by Rike's and Sear's. Over the course of the next four decades, the Salem Mall and its property would become a case study in the less obvious intrusion of government onto the economic plane.
It began almost immediately, but the Mall prospered well into the 1980's. There were expensive renovations in 1981, adding a two-story concourse and another anchor tenant, JC Penney (fittingly). The overall Salem Mall property itself had grown to over 110 retail tenants. But by the 1990's, there was already trouble creeping into the business. Tenant renewals were becoming more difficult to achieve and less frequent, while store traffic began to decline. There were all sorts of excuses for the shift in fortune, including unruly teenagers and competition from other outlets as big box retailers started to appear.
After 1998, there were only two anchor tenants left on the site. In 2004, the city of Trotwood purchased the former Salem Mall and property for $2.5 million and began redevelopment. It hired Chicago-based developer General Growth Properties to demolish the existing mall and construct a 900,000 square foot, open air retail "space" that included 40 retail shops, some restaurants and a movie theater. The new development would be called "The Landmark".
Trotwood received $880,000 in federal money for construction costs and an additional $400,000 for right of way acquisition. General Growth began demolishment on May 15, 2006. The Landmark never made it past that stage, a victim of the liquidity/real estate bubble as the city's plans were formally dropped in 2007.
In 2010, the city was back for another try, seeking a council resolution backing the "Salem Mall Master Plan for redevelopment for the former Salem Mall site" and appropriating "no more" than $45,000 to create it. The city's idea was to produce the master plan to attract "green jobs", another economic silver bullet and fad of governments facing economic change. Once green manufacturing and office jobs were in place, the city expected retailers to follow. The plan was tabled.
As much as the Salem Mall's demise, and the difficulty with finding a replacement, is blamed on the public's perception of the site, the downfall of the mall is emblematic of the shifting fortunes of Dayton itself. The population of Montgomery County, Ohio peaked in 1980 at 606,148. By 1990, the population had shrunk to 571,697 (-5.6%), and is now down to 534,325 (2012 estimates). The viability of the Salem Mall was tied to the properity of old rust belt industry, changing with the massive demographic shift toward the South. It was not so much that there were too many unruly teenagers (though that no doubt played some role for some consumers); there were simply too few shoppers.
Delco is long gone now, as is the GM presence. Even NCR moved its corporate headquarters out in June 2009, moving southward with the rest, to Georgia. As if that wasn't enough of a sting for Dayton after 125 years, Ohio's only remaining Fortune 500 company also promised to build a new manufacturing facility in Columbus, GA, creating an additional 2,000 jobs (on top of the 1,200 or so that would be shifting with the headquarters). As is standard procedure, Georgia ponied up all sorts of corporate welfare, and NCR made its decision without ever considering staying despite public assurances Ohio would match the giveaways and incentives.
Perhaps the greatest irony here is the reason the Salem Mall is "famous" in the first place. It sat on the site of Roscoe Filburn's former wheat farm. It was Mr. Filburn whose suit against the federal government in 1942 led to the Wickard v. Filburn ruling, greatly expanding federal government jurisdiction through the Commerce Clause of the Constitution. The Wickard ruling received much renewed attention in the wake of the Obamacare suit and subsequent Supreme Court case.
As part of the New Deal economic programs, the Roosevelt administration intended to control the price of wheat (among a great many other commodities). "Deflation" in agricultural prices was blamed as a significant contributor to the Great Depression, and thus, since markets had so badly failed, the government would step in to enforce price controls. The Agricultural Adjustment Act of 1938 limited the acreage farmers could dedicate to wheat production, and in July 1940 Mr. Filburn was notified his 1941 allotment was to be 11.1 acres with a "normal yield" of 20.1 bushels per acre.
Filburn instead planted 23 acres and harvested 462 bushels in July 1941, defying the quota set by the federal government. He was fined $0.49 per bushel, applied to the 239 "excess" bushels harvested. In suing the government, Filburn claimed that the quota did not apply since he intended to use the wheat for his own farm, feeding his own livestock. The wheat, excess or not, would never have seen the "market", and thus should not have counted or been subjected to these regulations.
After winning in Federal District Court for the Southern District of Ohio, the Supreme Court overruled the district court 8-0, calling the lower court decision a "manifest error". Writing for the majority, Justice Robert H. Jackson argued,
"The maintenance by government regulation of a price for wheat undoubtedly can be accomplished as effectively by sustaining or increasing the demand as by limiting the supply. The effect of the statute before us is to restrict the amount which may be produced for market and the extent, as well, to which one may forestall resort to the market by producing to meet his own needs. That appellee's own contribution to the demand for wheat may be trivial by itself is not enough to remove him from the scope of federal regulation where, as here, his contribution, taken together with that of many others similarly situated, is far from trivial."
Because he grew more wheat than his quota allowed, the court charged Filburn with removing "demand" from the market place that might otherwise support the government's artificial price mechanism. It did not matter that Filburn used his own wheat for his own purposes, by removing himself from the marketplace his own actions were contrary to the social purpose of controlling the price of wheat. If they allowed Filburn to do so, an accumulation of Filburns across the nation would defeat the wheat quota's intentions - which, remember, were for everyone's own "good". By limiting what Filburn could produce for himself, the government intended that he be forced to buy into the market and thus support the artificial pricing regime.
You can see the basis for the Obamacare individual mandate in there before it was corrupted by the twisting of the mandate penalty into a tax. Freely choosing to not participate in a "market" is the same as participating according to the decision, and thus subject to Congressional regulation under the Commerce Clause. Tortured as that logic is, my interest in the Wickard ruling actually comes from a less traveled section of Justice Jackson's opinion.
"Appellee's claim is not that his quota represented less than a fair share of the national quota, but that the Fifth Amendment requires that he be free from penalty for planting wheat and disposing of his crop as he sees fit.
"We do not agree. In its effort to control total supply, the Government gave the farmer a choice which was, of course, designed to encourage cooperation and discourage noncooperation. The farmer who planted within his allotment was, in effect, guaranteed a minimum return much above what his wheat would have brought if sold on a world market basis...It is agreed that, as the result of the wheat programs, he is able to market his wheat at a price ‘far above any world price based on the natural reaction of supply and demand.' We can hardly find a denial of due process in these circumstances, particularly since it is even doubtful that appellee's burdens under the program outweigh his benefits. It is hardly lack of due process for the Government to regulate that which it subsidizes."
The last sentence sums it up perfectly - if the government subsidizes the price of an economic good you have no cause to challenge its decisions. If the government buys you, whether you want it to or not, it really does own you. But it doesn't make any sense in the case of Roscoe Filburn. He was not interested in any monetary benefit from the artificially high price of wheat, he simply wanted to feed his cows. Money never entered into the equation from his side. There was never going to be monetary benefit to him whatsoever - his only interest was the intrinsic value of the wheat, i.e., the energy content - though the court implies he could have fed the cows more dollar bills than otherwise due to the government's unwanted beneficence.
Once it became not only established law but expected operating procedure for the government to enforce societal interests in the economy through these kinds of actions, governments began seeing such interests in a growing proportion of economic changes. Once government subsidized economic action due to some noneconomic value judgment about some kind of change, it "owned" that economic action. It became, in a sense, a duty to subsidize benefits that only further justified more subsidies. The city of Trotwood can claim a societal interest in seeing the former Salem Mall become a center for renewed business, and in doing so overrule the market's own decisions about the property. If it was economically viable, it would already be a bustling business area. Government, however, sees a societal interest where it doesn't exist - private resources have moved and been dedicated to other places more sustainable toward continued profits.
We can lament the changes wrought by the combination of all these factors great and small, but that emotional appeal does not create the economic societal good. We all want to live and work in a prosperous location, but wishing it were so does not make it happen; government can no more create a profitable business than it can properly regulate the price of wheat, or control how much energy Roscoe Filburn needs to maintain a herd of cows.
The low value of wheat on world markets was an economic signal of overproduction in the 1920's. It was a warning for US businesses and farmers (including farm labor), among other things, to get out of marginal agricultural production and shift toward higher-value businesses and innovation. Artificially propping up the price of wheat guaranteed that far too many resources would be devoted to wheat production in the first place. The emotional appeal of the poor and destitute farmer is simply the rationalization of resisting economically beneficial change demonstrated by free prices. We can feel sorry for the farmer, but there is no Constitutional right to farming any more than there is to a $15 per hour minimum wage, or a right that the Salem Mall should prosper as a retail center.
The intrusion through proper jurisdiction and subsidy regulation wrought under this system is a growing reduction in economic efficiency. The primary problem is that the government cannot, as no single entity can, divine how resources should be allocated. Government's interest will always be narrowly and subjectively construed, whereas market function is, by definition, broad and fully encompassing relevant information.
It is problematic enough when the federal government gets involved in the name of a societal good, as if they can determine one from mathematical estimations, but how can state and local governments do it at all? If a business moves from Dayton to Georgia, does the federal government act in society's best interest, or just the state of Ohio? What if a business moves from the city of Trotwood to the city of Dayton itself? Whose interests are to be served by government intrusion, and which government should do the intruding?
This continual appeal against the natural change of market capitalism has been proportional to the resources available to government. The Supreme Court only affirmed the idea in law that governments had interests and thus had authority. The expansion in scope of government intrusion was an outgrowth of financial reach. In other words, governments given the authority to regulate and influence in the name of our collective good were still limited by the amount of money they could obtain. Influence through the courts or police force is one thing, but it goes exponentially farther with actual cash and the ability to buy and "invest"; in other words replace private business in part or in whole.
From 1947 until 1965, according to the Department of Commerce figures, state and local governments' aggregate tax shortfall was relatively stable, at less than 14% (outside of recession) compared to current expenses, and consistently less than 45% compared to total expenses. By the early 1980's, the tax deficit was consistently around 45% for current expenses and 55% for total expenses. By the early 2000's, it was 60% and 75%, respectively. From the middle of the 1970's until the housing bubble, state and local governments not only increased their take on the economy through taxation, but also their reach through other financial sources.
The primary means of increasing money resources was both debt and the federal government. Local governments, like the city of Trotwood's ill-fated development idea, grew increasingly reliant on federal gravy to expand their role in economic development (especially transfer payments). Think about welfare and other transfers in the course of businesses, like NCR, that relocate. For so many residents in the rust belt, that meant making a hard choice to move with the companies and jobs, but transfer payments are economic incentives against that efficient flow. They increase the rigidity of the labor force, an ominous development for any economic system.
Since the early 1990's that has been achievable because of the explosion in debt. Where federal transfers were the primary source, it was cheapening US treasury bonds that allowed government expansion in the local economies. Even during the housing bubble when local governments slightly closed their funding gaps due to the influx in real estate taxes, it was still a debt-based foundation; this time mortgage debt in the household sector. In other words, Wall Street plays a large role here as the funding agent for government fulfilling its Wickard invention since it earns a large rent in promoting and underwriting government debt. And it is all predicated on interest rate targeting.
The nearly $4 million Trotwood used to get in the property business may not seem like much, but for a city of only 24,000 residents (and shrinking) it would not even be an option without debt financing, including those federal transportation grants.
The dynamic economy is a healthy economy, but it is not always a happy affair. Change is disruptive and produces pain and losses, but these are necessary conditions for growth potential. Again, nostalgia is not just a mistaken approach to influencing resource flexibility and flow, it is downright counterproductive. Businesses, and thus jobs and workers, will flow where they can thrive. There is no such thing as permanence in the economy, and governments should realize their real interests lie in embracing change and allowing it to flourish through its own means.
That does not mean there is no place for regulation anywhere. It simply means that, in the context of the last thirty or so years, there is no sense of proportionality left after the philosophy embodied in the Wickard decision joined forces with the monetary age. Once the bond market became so government friendly, in the flood of money seeking any asset or return potential, there were few restraints left. The result is an era of economic rigidity that some call stagnation, forcing fastfood workers to further press the age-old emotional appeal of the unfortunately displaced.
