Elections are About Hired Hands Not Statesmen

Charlie Arlinghaus

August 6, 2014

As originally published in the New Hampshire Union Leader

Every elected official fancies him or herself a statesman, a leader whose portrait will soon grace currency after he or she carefully deliberates a new constitution or the next Treaty of Versailles. In reality, they are mere functionaries we hire to perform tasks we are too busy to do ourselves. They are replaceable with a long line of equally or perhaps more satisfactory contractors willing to take each of their places at a moment’s notice.

I don’t mean to denigrate the politicians we hire to represent us in our constitutional republic. Nor do I suggest they are without talent or industry. In fact, I would prefer we hire the most talented and industrious contractors available for the job. If I need electrical work or plumbing done, I want to hire someone with talent and knowledge that I don’t myself possess.

But all too often, the romance and comfort of high office seduces the person we elect into believing that he or she is our leader, our better, someone with specialized knowledge and wisdom who can’t be replaced. This is more likely at the federal level with large salaries, dozens of staff to follow you around, carry your bags, and generally tug their forelock as they bow before you. It tends to be less seductive to make $100 annually and receive, for your trouble, a locker in the basement and free tolls.

During election season, the visions of statesmanship and servitude compete for attention in the sight of those seeking elective office. A candidate wants to simultaneously portray him or herself as something special and remarkable as well as an everyman, a regular palooka like you or me.

On the one hand they want to impress us with their knowledge of the problems of the day and their ability to analyze the issues and propose solutions. On the other hand they want us to know that they will strictly represent us, they believe what we believe, they will do precisely what we want and nothing more or less.

In 1774, Edmund Burke spoke to the voters of Bristol of a representative’s competing obligations to those he represents: “It is his duty to sacrifice his repose, his pleasures, his satisfactions, to theirs; and above all, ever, and in all cases, to prefer their interest to his own. But his unbiased opinion, his mature judgment, his enlightened conscience, he ought not to sacrifice to you, to any man, or to any set of men living. These he does not derive from your pleasure; no, nor from the law and the constitution. They are a trust from Providence, for the abuse of which he is deeply answerable. Your representative owes you, not his industry only, but his judgment; and he betrays, instead of serving you, if he sacrifices it to your opinion.”

The sometimes contradictory and often competing impulses are not inconsistent with the view of the elected as contractors. We pay a plumber for his knowledge and his judgment but not to put the sink where he wants but where we want.

In this respect it is critical for those seeking election to tell us as much as they can about their judgment, their analysis of the current problems of the day, and their preferred solutions. We expect not that we will agree in each particular but rather that we can form a complete picture of the man or woman who seeks to serve us, how they might react, and the philosophy they bring to the table.

Every year, campaign professionals (particularly those with the misfortune of living in greater Washington) will advise candidates to run away from specifics. Other actually well-meaning people are annoyed with specifics like pledging to oppose an income tax.

The thought is that being less specific presents fewer targets for attack and doesn’t limit your action post election. On the other hand, a candidate that won’t offer opinion or defers specifics to blue ribbon commissions merely sends us the message that he or she is vague, shifty, and more interested in being elected than in doing anything.

It is at election time that we have the best chance of finding the true character and opinions which will guide those we temporarily contract to serve us. They owe us their honest answers and opinions but only if we insist they give them to us.

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The Importance of Newspapers and Joe McQuaid

Charlie Arlinghaus

July 23 2014

As originally published in the New Hampshire Union Leader

Newspapers and publishers are rarely themselves the subject of newspaper articles. However, today I want to take the opportunity to write about Joe McQuaid, publisher of this newspaper, and the importance of newspapers in general to a healthy public life and discussion. Newspapers at their core are the foundation of all the other freedoms we have the luxury of taking for granted in a society so open and free that we don’t seem to notice anymore.

Tonight, my organization, the Josiah Bartlett Center will honor Joe McQuaid with its annual Libertas Award. The award is meant to symbolize the inseparable link between individual and economic freedom. None of those freedoms is possible without the unfettered gathering and distribution of information that defines newspapers.

Newspapers are often said to compose a first, rough draft of history. Tyrants, petty and grandiose, seek to influence or control the drafting of their own history. Chiseling away at the independence of the story can take many forms. Controlling what information is revealed to the public, which documents are released, and what the public can be permitted to see are all soft forms of control and censorship.

The more extreme forms of control are the subject of a fascinating discussion in journalist Anne Applebaum’s history of the crushing of Eastern Europe. Totalitarians – seeking total control – first limited free presses (only the newspapers we like receive paper rations) then abolished open information entirely because of the extraordinary threat it poses to control.

We honor Joe McQuaid tonight because he represents the opposite impulse and one that defines the American newspaper industry he grew up in. Because he’s such a familiar part of the community, we forget the history that Joe brings with him. He describes himself as the third of four generations of a New Hampshire newspapering family.

True to the roots of that history, Joe McQuaid’s work has been dedicated to ensuring the first draft and later drafts of history are both accurate and independent. In an era of changing newspaper economics, it can be difficult for newspapers to remain local and distinctive avoiding the pitfalls of generic and distant management.

Joe’s own description of his work to secure the perpetual independence of the paper was cited in an award from the New England Press Association and leaves no doubt about the mission and importance of independent watchdogs: “cookie-cutter homogenization may be fine for widgets and fast foods and price-to-earnings ratios, but I don’t think it is likely to inspire many publishers to follow Chicago Times’ founder Wilbur Story’s dictum of 140 years ago: ‘it is a newspaper’s duty to print the news, and raise hell.’”

But Joe’s efforts at securing a free and independent future isn’t just about one newspaper. Through his work at the Nackey Loeb School of Communications, Joe has supported and honored the work of competing newspapers and helped to train future journalists in good writing and reporting, elements that shouldn’t be lost to the fashions of aggregators and tweeters.

In his work as a publisher and editor, he has been a strong editorial voice for market solutions to problems and judging public policy independent of partisan politics. As important as his editorials have been to economic and individual freedom, his work has made clear that reporting the first draft of history can be independent of and uncompromised by other considerations.

Too many people presume that ideas must be subsumed to the political needs of individuals. No one reading any publication Joe is involved with is under any such illusion.

I have had the privilege of a regular platform in these pages for the better part of a decade. I know first hand about the independence of information. In ten years and hundreds of individual columns, not once has anyone ever suggested I rewrite anything, tone down anything, suggested a topic, encouraged or discouraged a subject no matter how annoying the resulting opinion or prose might be.

If I can close on a personal note, I first met Joe not as a newspaperman but as the husband of a friend of mine. I’ve known him as a devoted and caring husband, a very proud father and grandfather, and an interested member of his community. Beneath a quiet, taciturn exterior lurks a soft and sentimental heart that is really not hidden very well at all.

Joe is being honored tonight for his work opening government to the people, promoting the independence of information, and supporting the economic freedom at the heart of our system but also for just being an all around good egg.

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The Problem with Politics is Us

Charlie Arlinghaus

July 16, 2014

As originally published in the New Hampshire Union Leader

It is easy to become cynical about politics and partisanship and any other p word we aren’t supposed to like. The list of difficulties with modern politics is long and not that different from the supposedly but not actually noble past. The problem is that politics is practiced by people who are all too human, self-important, unaware of their own deviation from the typical, interested in ease not work, and a bit too excitable. In short, Pogo was right. “We have met the enemy and he is us.”

Pogo was a nice philosophical possum who ran for president. Not in reality of course but in a comic strip. The current constitution does not allow for a possum to serve in the Oval Office. Pogo was a popular comic strip in the 1950s and 1960s. Comics were then as they are now the most important part of the newspaper. That gave our friendly possum the ability to speak the truth to us.

Human beings are, as they always been, imperfect and flawed. Yet none seem so flawed as the denizens of the political world. The nobility of public service is tempered, as so many virtues are tempered, by the all too human impulses of those in it.

One difficulty is that political activity is conducted in full public view with armchair quarterbacks amused by every mistake, second guessing every statement, and parsing every utterance to twist into embarrassment.

The problem is partially theirs and mostly ours. We reward bad behavior and are apathetic about good behavior. Americans seem to enjoy nothing quite so much as a train wreck. Good news bores us, bad news excites us. Complicated explanations are soporific, simple horror stories are amusing. “He seems sound and rational” is not quite as fun to say as “holy cow, he fell flat on his face.”

In Utopia, politics ought to be about competing visions to solve the problems of the day. Two respectful opponents ought to engage in a rational discussion about the best path forward. Debate should take the form of discussion of unintended consequences, long term outcomes, and comparative advantages. But, let’s be honest, to most of us that’s about as boring as reading one of my columns (no offense to those of you reading and thank you for doing so).

I remember a day in 1996 when Phil Gramm, a policy-oriented senator running for president, unveiled a thoughtful and detailed small business plan. It took some time and it was quite serious. Unfortunately he unveiled it in a pizza shop and took the opportunity to toss dough. The stories and pictures were about a senator tossing dough in the air. The substance of his plan was much easier to ignore. No one wants to read that stuff. Not that each reporter covering the campaign didn’t complain about the lack of substance in modern politics compared the noble days of the past.

The noble days of the past of course included one senator beating another on the floor of the Senate with a cane, one gubernatorial candidate in Manchester slandering another by falsely claiming he slurred an ethnic group by talking about frogs hopping across the river, and the supporters of one founding father running stories about another founding father having affairs with his slaves. Such was the noble past.

Today, a professional class of itinerant political journeyman travel from one campaign to another, often in states they have little contact with and few roots in, working month in and month out in a subculture (campaigns) that has learned the lessons demonstrated by Phil Gramm. Substance doesn’t sell. Scandal does.

So we are treated to campaigns where everything is a scandal. Your opponent doesn’t have a bad idea. Instead he’s trying to fool you, or he’s hiding something, or some misspeak clearly disqualifies him. You and I might have a bad day and snap at someone or say something stupid when asked a question we don’t have time to think about clearly. That’s okay. A team of wolves isn’t watching. The politician who misspeaks saves his opponent the trouble of making a case for himself. Humans might stumble. Politicians may not. Statesmen can be boring. Politicians must be entertaining and relatively substance free.

Campaigns are not permitted to “get into the weeds” (what you might call substance). Instead, the other side must be portrayed as less human, less typical, or less “one of us” than my guy. Personality and pop culture are used to show not that I have a good idea but that “I’m like you.” He’s not like you so you needn’t even listen to him. The difficulty is that they are all like us and that’s not a pretty sight.

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Helping Businesses Make a Rational Choice For New Hampshire

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Charlie Arlinghaus

July 3, 2014

As originally published in the New Hampshire Union Leader

Please forgive me for returning once again -on the heels of last week’s column with the epic headline-to the subject of jobs in the Granite State, but the issue of jobs is more important than any other issue we face and is an area in which we continue to fail. No one wants a future in which New Hampshire is a lackluster economic backwater but that’s the track we’re on. A true economic recovery plan depends not on rhetoric or gimmicks, one bold idea, nor government “investment.” Recovery rather requires a comprehensive commitment to developing the right climate.

I’m regularly asked “what’s the one thing you would do to improve our economic competitiveness?” The first thing I would do is to try and get people to stop thinking that way. There isn’t one thing standing in our way. No governor or legislator will come up with the one silver bullet. Climates and reputations don’t come from doing everything just like everyone but with one magic tweak.

Businesses make rational decisions. As a state we can influence those decisions through reputation but most of all through competitive advantages. Historically, New Hampshire had a reputation for being business-friendly, fair, and economically quite competitive. That reputation is significantly diminished on nearly every count.

Before any business location professional got around to doing spreadsheets, they each started with the notion in their mind that New Hampshire was “an island of economic freedom in a Northeast sea of socialism.” No doubt this was an exaggeration but we had been able to build a reputation contrasting a low-tax reputation with our neighbor known throughout the country as Taxachusetts.

In both the 1980s and 1990s we were seen as using economic growth to lower the Business Profits Tax – the most obvious signal to potential businesses of our attitude. Three reductions in the 1980s lowered the tax from a high of 9.56% down to 8%. The 1990s reform that included the Business Enterprise Tax was a net tax cut and lowered the marginal rate again in two steps down to 7%. Both periods of cutting were followed by periods of extraordinary economic growth – more jobs, more higher paying jobs, more economic opportunity.

Recall that the late 1990s and turn of the century is when our stagnation began. We tripled the low rate of the Business Enterprise Tax and passed two separate increases in the profits tax. Today our tax is 8.5% while the tax in so-called Taxachusetts in only 8%.

However, it is important to note that tax changes are not the only thing that matters. Businesses want lower costs and lower taxes but they also care about regulation and the general attitude toward business issues.

New Hampshire is not unfriendly toward business but we do currently have a reputation for being not quite the same state we were. Regulations and fees are seen to be nickel and diming businesses. Recall the late 2000s when more than 100 different fees were raised. None was particularly burdensome in and of itself but they lent themselves to a reputation.

I’ve spoken for a couple years about creating, perhaps within the governor’s office, a council on competitiveness. So much of the administration is charged with enforcing the administrative regulations that have accumulated over time. It would be sensible to have a task force charged with comparing and contrasting regulatory structures of ours and other states, examining the precise ways in which businesses are forced to interact with the government and its regulations.

In Kansas, the governor created something like this and called it the Office of the Repealer. Rather than new programs or new ideas, Governor Brownback found laws and regulations to eliminate.

There is no reason we shouldn’t examine every business cost, find the ones in which we aren’t competitive and act specifically to change that. Two big examples illustrate the point. Our electric rates are double what they are in the lowest cost states. No high electric use business should currently consider New Hampshire. Yet electricity policy discussions rarely focus on reducing rates by 40% or 50%. It’s as if we concede those businesses to other states.

States can put out a welcome mat for new business and expansions by showering the potential business with gifts or creating an inviting climate and a friendly reputation. Economic development professionals will tell you the first question every potential business asks is about taxes with regulation and reputation following closely. We have to work harder but we can be nimble, frugal, and accommodating to restore the economic growth that once did and will again define our economy.

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New Hampshire is Comfortably Mediocre

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Charlie Arlinghaus

June 25, 2014

As originally published in the New Hampshire Union Leader

When did New Hampshire stop being New Hampshire? Whether one describes New Hampshire’s economy as mediocre, stagnant, or lackluster there is no denying that the latest economic news shows that we are no longer leading any economic charges but instead content to hope some crumbs drop from the tables of others. Once the envy of our neighbors, we may now be stuck as an economic backwater, another nondescript pea in the New England pod.

A terrific piece from Ben Leubsdorf in the Wall Street Journal this week speaks of the uneven recovery. The country as a whole has technically recovered: total jobs have come back to where they were prior to the recession. But recoveries are uneven with some winner states and many loser states.

That economic reality is familiar to Granite Staters. We count on it. New Hampshire is typically said to lead the region out of the recession. We mean that when jobs return, they return here first and we end up with a growing economy at the expense of more lackluster states. But that’s the old reality.

Today, we are comfortably mediocre. Five years after the recession technically ended, jobs have finally reached their pre-recession level again. But in 17 winner states, jobs are actually much higher while in 33 mediocre and stagnant states jobs are still down from their peak. New Hampshire is a loser – not an aggressive job exporter like Michigan but lackluster and definitely in the loser category.

States like Texas are scooping up jobs – Texas didn’t just recover, they’re up about 900,000 jobs higher than their pre-recession peak. They recovered strongly at the expense of states like Michigan (down 566,000), Ohio (down 155,000), and New Jersey (down 157,000). This represents a long term transfer of people, energy, and economic wealth from loser states to winner states.

This competitive dynamic used to be our friend. Post-recession expansions grew New Hampshire and confirmed our economic strength and power. Now, we don’t even outpace our mediocre neighbors. New England as a whole is about even but the power has shifted in our region. Massachusetts is now up about 80,000 jobs from its pre-recession peak while the other five New England states are all still below  their pre-recession peaks by a combined total of about 80,000 jobs.

What a weird and wacky world we live in when Massachusetts thrives at our expense.

I think part of the problem is that New Hampshire has become complacent. It is part of the mythology of our state that we are competitive and that businesses will naturally want to come here. If we think that – and most policymakers do – real competition passes us by.

There are two paths to competitiveness. One is to try and buy friends: to use incentives and gimmicks to induce companies to locate here. This strategy is often pursued by the largest states. They create incentive packages which usually grant the new arrival special treatment or tax relief that is not available to other companies who have the misfortune to actually like our state and locate without the bribe. The theory is that special incentives will lead to so many jobs it is worth the cost and disparity.

We read about this every time an auto manufacturer wants to build a new plant and Georgia and North Carolina start falling all over themselves to shower BMW or whichever company with state largesse.

New Hampshire can not and should not compete this way. First, we can’t afford it. The largest state economies are 20 and 30 times our size. If we enter a bidding war, we’ll lose. In addition, such special treatment violates a long standing tradition of fair play – we treat all taxpayers the same regardless of whether the current government is particularly fond of them.

We have to acknowledge that we are a very tiny piece of the American economy. Companies must compete in giant markets like California and Texas. Even Massachusetts is the 12th largest state economy. Tiny little New Hampshire may be twice as large as Vermont (the nation’s tiniest economy) but we are less than one-half of 1% of the country’s economy. No one has to be here.

We are increasingly uncompetitive in multiple areas of tax policy (notably three categories of business taxation) with high health, labor, and energy costs. There are worse states but our goal shouldn’t be “not as bad as some.” No policy is half as important as admitting our failings and trying to again become the growth engine we were in the 1980s and 1990s.

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I Wish We Could Be More Like Canada

Charlie Arlinghaus

June 18, 2014

As originally published in the New Hampshire Union Leader

The return of warm weather to our state seems the right time for me to wax poetic about Canada again. To the chagrin of many, I hold up “the true North proud and free” as an example to be emulated south of the border. Bear with me and see if you don’t agree that the United States should be more like Canada.

Let me begin by saying that I don’t suggest for a minute that everything Canadian is superior to everything American. Those of you familiar with the English language will understand that. But invariably on this topic some yahoo writes me a long diatribe about “socialized medicine” despite my disclaimer about not preferring their health model. In that yahoo’s defense, this column will run a good 750 words and it’s a lot to expect a reader to make it through all of them.

So let’s begin with the disclaimer: I’m not a fan of the Canadian healthcare decisions undertaken over the last 60 years. I suggest merely that we emulate their sense of fiscal responsibility. Also, I like curling. I want to further suggest that if the Canadians can accomplish restraint, we could too if only the will existed here (which it plainly does not).

Canada in the mid-1990s was a fiscal basket case on the same order as the current United States. Debt had risen to 70% of GDP which was considered intolerable (by contrast most denizens of our Congress are unworried about debt and quite content to let it skyrocket). The Liberal Party, a center-left party and long the dominant party in Canada, decided to do something about it.

They decided to stop spending money they didn’t have. In the two years from 95-97 they actually cut spending. This is weird, goofy, and unheard of in Washington but Canadian spending declined by 5%  — they actually spent fewer dollars not an adjustment to some potential growth rate.

Coupled with the cuts, restrained growth over the next few years meant spending declined as a percentage of the economy — from 53% to 39% in about a decade. As a result, their burdensome debt shrunk from a scary 70% of the economy to a more manageable 32%.

American politicians believe that what the Canadians did is not actually possible. I think some of them don’t understand that Canada is a real country and not a made up kingdom like Ruritania.

Interestingly, our Congress has done something of a reverse Canada. After bottoming out at 31% of GDP in 2001 (when the budget was last balanced), The US public debt has skyrocketed to about 74% of the economy with total debt now over 100% (which I don’t need to tell you is insane).

Worse, current congressional plans are to try and make things as bad as possible. Rather than be alarmed by total debt over 100% of our economy (think the happy thought: hey, we’re like Greece), we’re going to double down.

If nothing changes, we will spend $48.2 trillion over 10 years and add another $7.6 trillion to our debt. But why can’t we be more like Canada?

Canada had to impose an actual spending cut to reach discipline. We just have to let up on the throttle. Current plans for the next decade would increase spending by 5.3% each year – from $3,523 billion to $5,920 billion. If we still increased spending each and every year but merely reduced the rate to 3.4% we would balance the budget in 10 years.

This sort of modest restraint is referred to in Washington as draconian spending cuts or an austerity program. Yet, does anyone really believe that asking government to merely slow its pace a bit is draconian?

Opponents object that “austerity” is bad for the economy and will inhibit growth. While that may be true of massive cuts of 20 and 30%, in Canada even a 5% reduction was coupled with 3.2% GDP growth. In the US, we’re not talking about cuts or even a freeze but rather significant growth of 3.4% each year. It’s hard to believe that 5% spending growth is great but 3% growth is cataclysmic.

What’s more likely is that politicians who don’t have to balance a budget today don’t want to make decisions. It is much easier to turn on the auto pilot rather than having to say no once in a while. I don’t think Canadian politicians of the 1990s were any more noble than the lot we’re stuck with but they chose to act like adults. I wish we could be more Canadian.

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The Most Annoying Time of the Legislative Year

Charlie Arlinghaus

May 28, 2014

As originally published in the New Hampshire Union Leader

The most annoying and disheartening time of the legislative year is upon us – the time when transparency and honest debate are sacrificed on the altar of hidden agendas in pursuit of that elusive legislative pot of gold, “a deal.” Committees of conference are legislative mini-summits where the romanticized version of a smoke filled room creates comparisons to sausage making that do a distinct dishonor the noble smoked meats.

In a legislature of two houses – a Senate and a House of Representatives – disagreements are common. This year, with opposite parties controlling each body, disagreements are plentiful.

When one body merely rejects the bill that passed the other, nothing happens. Yet, quite often, each body will pass a different version of the same bill. In such cases, negotiators are appointed and a committee of conference meets to find common ground.

Finding areas of agreement seems straightforward enough but the all too human machinations in pursuit of “a deal” are what gave rise to the legislative sausage making metaphor.

That metaphor’s history is a bit like the process itself. In 1869, John Godfrey Saxe found legislative machinations as convoluted then as now and wrote “Laws, like sausages, cease to inspire respect in proportion as we know how they are made.”

The quote was memorable but Mr. Saxe was not, so one textbook writer in the 1930s started his description of legislative shenanigans with, “I think it was Bismarck who said….” For decades no one bothered to check the writer’s uncertainty and so we incorrectly attribute the thought to Germany’s Iron Chancellor Otto von Bismarck.

Much of the legislative process is transparent and merely involves two sides disagreeing. The slightly distasteful committee of conference process has rules but so many of them aren’t what they seem.

In theory, the two sides negotiate and all must agree – this helps prevent a small clique from seizing power from a majority. In practice, the Senate President or Speaker can and does remove and replace anyone not toeing the line.

In theory, everything agreed to should have been part of one bill or the other – after all we are supposedly just ironing out details of difference between similar bills. But the rules are slightly different. They allow anything in the final product that was is simply the subject of either version. If the subject is interpreted broadly – and it is when useful – this allows pretty near anything to come back to life.

There are roughly eighty conference committees hashing out agreements. That doesn’t mean there are eighty disagreements. Sometimes, the building blocks of deals are tacked on to other bills at the end of the regular session to preserve negotiating power.

For example, an innocuous bill to create a voluntary fund for robotics education had a liquor sample bill tacked on the end of it. The message is “we don’t disagree but if you want this passed, you have to give us something in return.”

Small potatoes horse trading, to mix a few metaphors, isn’t of much concern to anyone. But on large complex bills new ideas can be introduced that no one has had a chance to consider, that have had no public hearing, and yet need to be voted on almost immediately by legislators who have had little or no chance to consider them.

At the end of the Great War, Woodrow Wilson called for “Open covenants of peace, openly arrived at, after which there shall be no private understandings of any kind but diplomacy shall proceed always frankly and in the public view.” The same frustration might be expressed about legislators.

Too often, the open public meeting is a sham. Very brief, uninformative, and highly choreographed meetings are a theatrical production. The meetings are rare and short while the recesses are long and hidden. In fact, agreements are arrived at behind closed doors during what is ostensibly a recess. Diplomacy occurs out of the public view and we’re never quite sure what happened.

In Wilson’s time, professional diplomats relished the intrigue and gamesmanship of old fashioned secret diplomacy. Today, a subset of legislators and staff romanticize the “sausage-making.” Playing the game and the art of the deal create a sense of separation from the rest of us who aren’t “in the know.”

Wilson may have been naïve about international diplomacy but we all have cause to be a little wary of backroom deals. I like knowing what’s in my sausage.

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Minimum Wage Hike Will Hurt Entry Level Workers Most

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Charlie Arlinghaus

February 5, 2014

As originally published in the New Hampshire Union Leader

Proposals at the state and national level to increase the minimum wage will hurt the job market, decrease the number of jobs available, and hurt the people advocates are trying to help. Specifically, the higher wage will make it more expensive to hire entry level workers and reduce opportunities for lower skill workers trying to build job experience.

The current federal and state minimum wage is $7.25 per hour. It is a minimum that affects few employees. Nationally, only 2.7% of all wage and salary workers earn the minimum or less (1.2% of workers are at the minimum while 1.5% have jobs that can legally pay less than the minimum like golf caddies, outside sales, or farm labor).

Economists are paraded about by both sides to advocate for and against and to discuss the effects. A 2007 National Bureau of Economic Research paper reviewing the literature found “a lack of consensus about the overall effects on low-wage employment.” But lest you think the research is completely up in the air, the authors noted “the studies that focus on the least-skilled groups provide relatively overwhelming evidence of stronger disemployment effects for these groups.”

This evidence is not hard to understand. The minimum wage is not a wage people expect to make for the rest of their lives. It is not a permanent wage. In fact, two-thirds of minimum wage workers earn a raise within a year, the majority of them seeing wages increase by 24% or more.

Two-thirds of minimum wage workers are part-time and the majority are young, under the age of 25. In fact, most of us started in a minimum wage job. Data shows 55% of American workers started at or near the minimum wage. Your own experience is probably similar. My early jobs were below minimum age and at the minimum wage.

Supporters suggest that an increase in the minimum would not reduce or affect the jobs available. Common sense, and the preponderance of research, suggests this isn’t true.

We would all agree that doubling or tripling the minimum wage would naturally reduce the number of jobs available. A company that can afford a small number of employees at $7.25 will have fewer employees for fewer hours if we make them pay $15 or $21. Companies, already reluctant to add jobs because of economic uncertainty, will add fewer jobs, cut back hours.

Mandated minimums can be thought of as the price of hiring. If you make the price for an employer of hiring labor higher, he will hire less of it than he otherwise would. A smaller increase will have a smaller effect but it will have an effect.

The people most affected are people entering the job market. For most of us, our first entry into the market is through a minimum wage job – that first job through which we gain the valuable experience of having a job, getting a start doing something, being supervised, working specific hours at someone else’s direction. That entry is invaluable.

Raising the price of entry means there will be fewer opportunities. Remember that 21% of teenagers paid hourly earn the minimum wage but only 3% of hourly workers 25 and over. Obviously, the minimum wage is best thought of, for most workers, as the entry gate into the labor market.

Thought of this way, raising the minimum wage hurts the people advocates most want to help. We want more workers having an opportunity to enter the market and start building the experience needed to get their second job. We want more workers to start the process of having a beginning job, moving to an intermediate job, and then to a more advanced job.

Increasing the price of entry level jobs will reduce the number of them. For a worker whose job isn’t downsized, he or she will see more money initially. But for many more workers and potential workers their potential position won’t be created, their hours reduced, or their jobs eliminated.

At the end of the day, New Hampshire needs more jobs not fewer. Entry-level workers need greater opportunities. Raising the minimum wage will satisfy politicians who don’t understand economics but will hurt the very people they are pretending to help.

 

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Are We Doomed to Be a Stagnant State?

Charlie Arlinghaus

January 31, 2014

As originally published in the New Hampshire Union Leader

New Hampshire is complacent. As a state we seem to have accepted stagnation as a way of life and are just trying to figure out how to adapt to it. The vision of New Hampshire as an island of prosperity is receding as policymakers increasingly decide they must adopt rather than fight economic mediocrity.

In the not too distant past, New Hampshire was a beacon of economic growth and opportunity. We spent decades as one of the fastest growing states in the country. More people and more jobs went hand in hand.

Part of the growth came from Boston sprawl, high cost of housing in North Shore suburbs, and the spread of the exurbs across the state line. But much of the growth and in-migration came from explosive job growth. The number of people employed in New Hampshire grew by 30% in the 1980s and another 17% in the 1990s.

We experienced recessions but we responded to them by assuming growth was still possible. The recession of the early 1980s was in many ways as bad as the most recent recession. New Hampshire’s budget crisis at the time was just as bad as it was recently.

But we were still a people at the time who thought of New Hampshire as different and competitive. Policy leaders decided job growth was essential. Our Business Profits Tax, then only a dozen years old had gotten out f hand and was the among the highest in the country. Then-governor John Sununu, himself a tax refugee from Massachusetts, signed a gradual reduction of the BPT. It was cut three times reducing the rate by 16%.

State economies don’t run counter to economic tides but they can slow them or enhance them. We led other states out of the recession and jobs grew by 25% in five years. There was a significant migration into the state, a large business tax cut, and a large job increase. Different policymakers will assign different factors as the cause. I suspect that the economy was ready to grow, the tax cuts sent a strong message to businesses pre-disposed to like New Hampshire’s then-reputation anyway and the jobs led to the migration.

The next recession in the early 1990s was in many ways the worst recession this state has ever faced. Jobs had actually declined three years in a row. The new governor, Steve Merrill, talked about jobs almost exclusively. He had a jobs plan and pursued significant workers compensation reform. But the centerpiece of his plan was to send a message about business taxes.

Merrill’s business tax reform was revenue neutral but coupled a new very small Business Enterprise Tax (one-quarter of 1%) with two pro-growth cuts in the BPT, a 12.5% rate decrease. Again New Hampshire took advantage of the coming recovery and led the region out of its worst recession. The next five years saw a 12% increase in jobs, the last time the state has seen job growth anywhere close to that rate.

Again, cutting the key business growth oriented tax led to the jobs being added landing disproportionately in New Hampshire.

Since that time, we’ve been in stagnation. Over the last thirteen years, jobs have risen a bit and fallen a bit but have averaged annual growth of just three-tenths of 1%. Our lost decade is now thirteen years and counting.

Some will blame the stagnation on a lack of migration into New Hampshire but I suspect that is a symptom rather than a cause.

It is also worth noting that at the beginning of this stagnation the state increased the Business Profits Tax twice, a 21.4% rate increase. Policymakers also tripled the smaller Business Enterprise Tax which may have had a lesser effect on decision making but certainly sent a psychological message.

Sometimes the stagnation of our last years is presented as a new reality which must be accepted and processed. But the truth is New Hampshire is still a nimble state and can easily begin adopting pro-growth initiatives.

Economic stagnation is not a new reality. It is the most important problem that no one is doing anything about.

Thirty years ago and twenty years ago, policy leaders made a job-attracting climate a priority and jobs and people followed. Fifteen years ago, we reversed course and did almost exactly the opposite. It had almost exactly the opposite effect.

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If only every legislator read Charles Dickens

Charlie Arlinghaus

March 26, 2014

As originally published in the New Hampshire Union Leader

The great economic principle of our time comes not from an economist or a banker but from the great Mr. Micawber, a somewhat comic character created by Charles Dickens.  Wilkins Micawber had figured out the central organizing fact of modern life when he suggested to young David Copperfield, “Annual income twenty pounds, annual expenditure nineteen pounds nineteen and six, result happiness. Annual income twenty pounds, annual expenditure twenty pounds ought and six, result misery. The blossom is blighted, the leaf is withered, the God of day goes down upon the weary scene, and  – and in short you are for ever floored.”

The importance of spending just sixpence less than you earn is of course just as true for the individual as it is for lawmakers. Sadly, neither individuals nor lawmakers have any intention of listening to Mr. Micawber. I don’t think they object to Mr. Micawber’s use of an archaic, non-decimal monetary system nor do they have objection to the fundamental wisdom within.

Instead, the modern citizen and the modern lawmaker object for the same reason – it’s inconvenient. It is far easier for each of us, enabled by the modern temptation of easy credit, to spend more than we know we should. Certainly many of us will quite rationally buy a house or a car on time. It becomes simple to extend that rationalization of capital expenses to a giant television, a vacation, or even a shirt and a pair of socks. We shouldn’t buy the socks on time but we can’t help ourselves.

Government is the same way. It’s like a small child on a grand scale but without any of the counterbalances and disciplines even the least responsible child is subject to. On the contrary, the incentive structure in modern political life rewards the politician for dismissing Mr. Micawber as an amusing but irrelevant artifact of another time. Instead we reward them for acting like small children.

The classic example of bad behavior is debt. There is nothing inherently wrong with government debt. Governments like the rest of us might sometimes buy a thing or two over time. At the state level, we have an entire separate budget for such things. We pay for some office building, large highway projects like bridges, and other capital expenditures over a 20 year debt cycle. We make payments from the regular budget to pay for the loans in the capital budget.

But even our generally restrained locals can’t resist adding on. In economic downturns we pile on. Remember when we took out a loan to pay for debt payments? Or we borrowed the money to pay for things we used to pay out of the operating budget? This was simply an attempt to avoid Mr. Micawber’s truth.

He risked debtor’s prison if he overspent. We just add debt to be paid off at a future date. I suppose that we avoid his predicted result of misery by sending that misery forward to our children and grandchildren. In bad economic times, debt even in New Hampshire ratchets up. But it is in fact a ratchet. It never comes back down.  Flat debt for ten years is followed by a four year explosion of 43% which is then followed by a flat period. We don’t slowly bring debt back down, we create a new normal.

The nightmare in Washington DC is often described and perhaps too depressing to mention here. I think we best not even mention Mr. Micawber to them lest they try to tax him or name a bridge after him.

But  we should blame ourselves not the poor feeble minded politicians. They merely behave following our example and our incentives. We reward them by getting excited when they do something big and bold – a new bridge or a new program. Politicians talk during elections about all of our money they spent because it makes us happy.  No one wants to talk about the borrowing that produced the funny money nor does anyone ask a question about the debt we’re passing to our grandchildren (our kids are tapped out at this point).

Would you even listen if a politician told you about realigning priorities so we can do maintenance on the assets we currently have? Do you care about the Micawberian analysis? No, you want a nice shiny new bridge, you don’t want to pay for upkeep on the old one. Paving is boring, rainy day funds don’t earn votes. We can’t pay to keep up the things we already have but let’s build new ones anyway.

Wilkins Micawber first emerged in print in 1849. He is long gone and long forgotten. That’s a shame.

 

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