Tag Archives: economics

 Denver’s mayor is out to lunch – but he might be the only one

Posted on by
4

Have you seen the Denver restaurant scene? Me neither. It’s dead and gone.

In a one-year period, the number of restaurants in Denver declined by 183. Of all the restaurant closures in Colorado last year, 82% were in Denver – a place that has only about 12% of the population of Colorado.

Average profits at the few surviving Denver restaurants are only 3-5%. Anyone who dines out knows that this isn’t because prices are down. It’s because costs are up. Restaurant wages in Denver are up 89% since 2019.

The main reason is Denver’s minimum wage of $18.81/hour for ordinary workers and $15.79 for tipped workers. For comparison, in New York City the minimum wage for both is $16.50.

That’s right, the minimum wage for ordinary workers in Denver such as kitchen staff is much higher than in New York City, and for tipped workers such as servers it’s almost as high. For both, it’s higher in Denver than in Aspen.

The mayor has a solution for the unprofitability and resulting demise of Denver restaurants. His solution is . . [drum roll] . . . to slap an extra tax on your tab to make dining out even more expensive.

He proposes tacking a 20% surcharge onto every restaurant tab. The proceeds, he says, would be distributed not to the restaurant owners, but to the non-tipped restaurant staff – the kitchen workers who already enjoy a 20% higher minimum wage than the tipped staff. He says the system that has ruled restaurants forever, where servers who are tipped for good service often take home more money than kitchen staff who are not, is “inequitable.”

That’s not what the market says. The market says the tipped servers have a combination of people skills, hard work, charm, and the ability to remember the orders of half a dozen patrons at once, that makes them very valuable. In other words, they merit more money for their work because their work has more merit.

But what does the market know in comparison to the mayor of Denver? You see, we can’t let merit as defined by the market get in the way of “equity” as defined by the mayor.

As is usually the case with socialist redistribution schemes, there’s a sneaky something in this for the government, too. The 20% surcharge would be “topline” and so the city and state sales tax of 8.81% would apply to it.

That’s right, the city would tax their own surcharge – they would tax their own tax. The total surcharge would thus amount to 20% plus 8.81% of 20%, for a total of almost 22%.

Unsurprisingly, the Colorado Restaurant Association is not thrilled about the mayor’s proposal, to put it mildly.

“It’s government policy that is causing the problem in the first place,” said one member of the Association. “Basic economics tells you that when you want to encourage sales, you lower prices — not add 20% more plus tax to everyone’s costs,” said another. “This won’t fill restaurants any more than raising rents would fill empty office buildings,” said a third.

The remark about empty office buildings in Denver hits another nerve, which I’ll save for another column.

The mayor is on quite a roll. Last year, he spent zillions of dollars of Denver taxpayer money on two pet projects: Attracting more illegal immigrants and attracting more vagrants. He succeeded in both.

Along the way, he taunted the federal immigration authorities. He said after the election that he was willing to get himself arrested and sentenced to prison for interfering with their enforcement of the nation’s laws. He boasted that his little insurrection might put him on the wrong side of the law, but the right “side of history.”

Sounds a little like another Democrat from another era, Bull Connor.

The response of the Feds was along the lines of “Make my Day.”

The mayor’s vanity projects don’t come cheap, and money is scarce, especially as the mayor risks losing federal grants. After spending millions on vagrants and illegals, Denver lacks money to pay for basic services such as parks and libraries.

But the mayor has a solution to that problem too. He proposes to borrow money.

Notice the shell game here. The mayor took ordinary city funds that would ordinarily be spent on ordinary city services, redirects them to spend on illegals and vagrants instead, and then seeks to borrow money to replace those ordinary funds in order to fund the ordinary city services.

Does he imagine that we’re unable to see that the economic reality is that he’s borrowing money to pay for the illegals and vagrants?

The mayor didn’t say how much he wants to borrow, as he doesn’t want to lock himself into an amount that he’ll then exceed. It’s like the Left’s reply when you ask them to put a number on the “fair share” that people who have more money than they do should pay in taxes. Their number is “more.”

I don’t usually resort to name-calling. It’s a primitive form of debate, it’s not very persuasive, and it’s not very enjoyable. The most important Latin I learned as a lawyer was res ipsa loquitur.

But I’ll make an exception here. The mayor of Denver is a nut job.

Is “cheap stuff” the right goal for our trade policy?

Posted on by
3

Economists – who have predicted seven of the last four recessions – will tell you that trade tariffs are bad. The reason tariffs are bad is that they make imported goods more expensive. The money for the tariff has to come from somewhere, so it gets built into the price of the product.

So, the effect of an American tariff on, say, televisions made in China is to raise the prices to the American consumer.

OK, I buy that. But what does that mean in real life?

It means that a family in Peoria that would like to buy a 60” TV might have to settle for a 52” screen.

That strikes me a something less than catastrophic. If that’s a “global trade war” then these economists never studied the lead-up to World War Two.

But still, I admit that settling for a 52” TV rather than a 60” TV is not a positive. It’s a negative. Especially if you combine it with settling for a phone with a camera having 2X zoom rather than 3x zoom, and settling for a car that goes 0-60 in 5.9 seconds rather than 5.6 (both of which are way faster than the muscle cars of yesteryear, by the way), and settling for a dishwasher that you can turn on and off easily but not from France.

So, I do acknowledge that tariffs entail some cost to people who like to buy stuff – and we all do like to buy stuff. But that’s not the whole story. Credit Donald Trump and J.D. Vance for starting a discussion on this.

There are several legitimate reasons for tariffs. One is to protect a strategic American interest. Steel is used throughout industry, from buildings to tanks. Sure, we could import all our steel from China, for now, but what happens when we close our steel mills and then have a conflict with China and they cut off our supply?  

A second reason for tariffs is to use them as a bargaining chip. Foreign countries sometimes unfairly protect their industries from American goods, whether it’s the vineyards in France or the chip-makers in Taiwan. We can unilaterally remove our own trade barriers while they retain theirs, but a smarter approach is to threaten a tit-for-tat where we impose barriers unless they remove theirs. This typically works.

Everyone admits both of these reasons. Weighing and applying them can be complicated, but there’s no doubt about their legitimacy.

A third reason for tariffs is more subtle. It’s to protect American culture – and French and Italian and Korean culture.

Economists will tell you that the best economy is the one that’s the most efficient. That sounds logical. It means that if wine can be produced most efficiently in Italy, then that’s where is should be produced. If steel can be produced most efficiently in China, then that’s where it should be produced. If AI software can be produced most efficiently in America, then that’s where it should be produced.

The reason that efficiency trumps everything else, the economists will say, is that the efficient production of goods leads to the lowest prices for those goods. Low prices mean greater availability to poor people. What could be more important than globalized trade that results in cheap goods for poor people?

Culture, that’s what. And the best culture is not necessarily the most efficient one.

Maybe good wine can indeed be produced more efficiently in Italy than in France (my own judgment notwithstanding). Does that mean the French vineyards should be put out of business?

Maybe cars can be produced more efficiently in Korea than in Italy (which is surely the case). Does that mean the car factories in Italy should be demolished so that they can be made into vineyards and we should all drive a KIA and not a Ferrari?  

An economist would answer “yes.”

But an economist knows the cost of everything and the value of nothing. Destroying those French vineyards exacts a cultural toll on the French countryside and its people that is impossible to assign a Euro value to. Destroying those Italian car factories that build automotive works of art is almost like destroying Florence.

And what about the personal toll on the workers and their families?

What’s that you say? They should “learn programming?” But AI is putting programmers out of business too.

Economic efficiency is not the highest and best goal of a trade policy, especially in a rich culture. The loadstar of our trade policy – and our foreign policy – should be something more than that.