January 22

The Big Sugar Taxpayer Ripoff Blues

15  comments

sugarcane-in-fla-blog-size.jpg
Sugar Cane field in the Everglades
I fished a book out of the pile that I ordered last year but hadn’t yet gotten around to reading. I was actually looking for something else, but noticed this one and realized that I had completely forgotten it. I flipped through it to get a feel for it and came upon a section that I though might interest readers of this blog.
big-ripoff-blog-size.jpgThe book, The Big Ripoff, is catalog of corporate welfare abuses of the public trust. It was written by Timothy Carney, who, from his bio, appears to be a journalist of the pretty far right of middle persuasion. In my years of political observation, I’ve noticed that on the subject of corporate welfare the far right and the far left are blood brothers. Both despise the idea of tax dollars being shoveled to big business. Where they part ways is in their ideas as to what should be done with this tax money (our money) should it be kept out of the hands of corporate America. The left believes it should be diverted to social causes whereas the right feels it should be given back to us (or never taken in the first place) to spend as we see fit.

The family, through its company Flo-Sun, Inc., and many related companies such as Florida Crystals, controls about one-third of Florida’s sugar production. The Fanjuls, together with their elder in the sugar industry, U.S. Sugar, own a majority of the cane fields in south Florida. These massive corporations might not exist–indeed there might be no sugar cane industry in Florida at all–were it not for corporate welfare.
Very literally, the government has laid the foundation for their sugar business. Without the intensive and expensive federal drainage of the Everglades, it would be impossible to plant sugar–the land would be too wet, and covered with saw grass and mustard trees.
After building the canals and dikes and dredging the lakes, the taxpayers continue to pay for the maintenance of the whole system that keeps the Fanjul’s land dry at the expense of the ecosystem. According to an estimate from the past decade, taxpayers pay about $52 million a year for the Army Corps of Engineers to control water flow for Everglades agriculture–mostly sugar.
Enter the next government program from which the Fanjul’s benefit: the U.S. Department of Agriculture (USDA). The USDA loans all sugar growers 18 cents for every pound of cane sugar they grow, and beet sugar farmers get about 23 cents a pound. In recent years, these loans have averaged more than $8 billion annually, with the Fanjuls’ receiving an estimated $65 million.
The growers set the sugar aside as collateral. That means that if they can’t or don’t want to pay back the loans, made at lower rates than the market would dictate, the government takes their sugar, and forgives the debt. In other words, if you grow a pound of cane sugar, you know that the very worst you can do is sell it to the government for 18 cents–more than twice the going world price for sugar for many years.
In 1999, for example, U.S. taxpayers were left on the hook for $105 million after Florida sugar cane farmers were unable to unload 590 million pounds of sugar for more than 18 cents a pound. During most of that year, the average price of raw sugar was 6.55 cents per pound.
But this is all chump change compared to the real sugar ripoff, which costs Americans $1.9 billion per year–all of which lines the pockets of sugar farmers, including the Fajuls. This transfer of wealth happens because the Fanjuls and other American sugar growers charge (and American consumers have little choice but to pay) more than twice the world price for sugar.
How do sugar makers get away with charging that much for sugar? They make sure the government keeps the world’s sugar out of the United States. The U.S. government allows each country’s sugar growers to sell only a certain amount of sugar into the United States. These quotas artificially limit the supply of sugar Americans can buy. This drives up not only the price of a bag of sugar but also of candy bars, soda, and any other food that contains sugar. From 1998 until 2004, American consumers have paid an average of about $1.8 billion more for food annually because of these import quotas. The General Accounting Office (GAO) also estimated that almost half that money goes to large sugar growers, such as the Fanjuls.

What have all these sugar price supports gotten us, the citizens? Well, in a sense it has been responsible for creating a monster that many believe is one of the root causes of much of the obesity afflicting many of us taxpayers today.

…sugar growers’ brethren, corn growers, like this deal, too. The artificially high price of sugar has created the market for high fructose corn syrup, which American food and drink makers use where the rest of the world uses sugar. Corn growers also get subsidies, tariff protection, and special tax breaks.

I wrote in an earlier post on the difference in taste of Coca Cola and other U.S. based soft drinks bottled in Mexico. Toward the end of this post, I mentioned a piece by John Stossel on an interview with Dwayne Andreas, the former chairman of Archer Daniels Midland, the giant company that makes high-fructose corn syrup and gets grotesque amounts of largess from our government (i.e. you and me) for doing so. It’s an interesting and infuriating interview.

If not for corporate welfare, there might be no cane sugar grown in the United States. This would be a good thing. Without influential families and businesses like the Fanjuls to protect, Washington would drop its barriers to the world’s sugar. The world sugar price might rise slightly when the United States started buying more foreign sugar, but American’s, who typically pay 50 percent to 100 percent more than the world price, would undoubtedly save on both their grocery bills and their tax bills. The Everglades might recover, and candy makers might move back to the United States. But that’s all wishful thinking.

And we all might have our health restored if sugar got cheaper and HFCS took a powder, but don’t count on it. The HFCS genie (monster, more like) is out of the bottle. As a consequence of our transferring (via our elected officials) billions into the pockets of the Fanjuls and their brethren thanks to sugar price supports, HFCS was developed to provide sweetening power to industry at a price less dear than sugar. Along the way industry discovered that not only could HFCS sweeten as well as sugar, it sweetened even better. And it works better in manufacturing process for ice cream and a multitude of other processed foods that formerly used plain old sugar. So, HFCS is here to stay.
Now we’ve reached the point at which our government is forking money over to the sugar industry and the HFCS industry, both of which are undermining the health of America. At the same time, this same government is funding the U.S. Nutritional Guidelines (our old friend the Food Pyramid), which encourage us to eat plenty of complex carbohydrates. And the same government is worried about the burgeoning obesity and diabetes epidemics and funding all sorts of groups to tell us we need to reduce the amount of fat in our diets.
It would be almost comical if it weren’t so tragic.


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  1. Sir pal asks is there anyone you could recommend please ?
    Her hair is falling out aside from the migraines etc and from what you said and from what very little i can ascertain her current Dr has her on all manner of things that smack of someone who doesnt know his arse from his elbow.
    Any pointers would be deeply appreciated. Know any Dr’s who work along your lines in BC or at worse WA area please-um ?
    Sinc.
    Simon
    Hi Simon–
    I do know someone who is in Spokane.  It’s a clinic run by our former nurse and her physician husband.  Nurse’s name is Debbie Judd, and maybe she knows someone in Seattle or BC.  If your friend goes to the clinic in Spokane, I’m sure she will be well treated. 
    I wish I could help directly, but taking care of someone via the internet whom you’ve never seen nor lain hands on is a real fool’s errand, not to mention extremely bad medicine.
    Cheers–
    MRE 

  2. I love when they talk out both sides of their mouth. Our government is no longer “of, by, and for the people.” It is “of, by, and for the corporations that funnel money into the pockets of politicians.” The FDA and USDA are pathetic when it comes to keeping an eye out for us “little guys”.
    Hi Scott–
    I couldn’t have said it better.
    Cheers–
    MRE 

  3. You don’t mention how sugar is in any way healthier or better for you than HFCS. I suspect this is because there is currently no study that suggests such a thing.
    Demonizing a single food as “one of the root causes” of obesity does little good. Rather, it is important to moderate consumption of both HFCS and sugar, keeping in mind that both sweeteners are equally bad for you in high volumes.
    Hi TakeTheWheel–
    There are countless studies showing that fructose is bad.  Cane sugar is half fructose, the most common type of high fructose corn syrup is more than half fructose, so it is indeed worse.
    I’m happy to demonize sugar because as far as I can see there is not a single health benefit derived from its consumption.  In fact it’s quite the opposite.  Sugar is bad, HFCS is worse.
    Cheers–
    MRE 

  4. Well, it makes me think of the biblical passage in Mathew which asks…
    What good will it be for a man if he gains the whole world, yet forfeits his soul? Or what can a man give in exchange for his soul?
    I think we’re seeing some soul selling and at some point these folks might be doin some soul searchin. I know we’re not to judge but it’s sometimes like “chocolate for the soul” (I should copywrite that!) I think of these people, big pharma people and Monsanto and others, who seem to have no moral or social decency or conscience at some point getting their ultimate reward. From a Judeo-christian standpoint, that may be a very warm place. From a Hindu standpoint, “perchance to dream” of them reincarnating as a microbe on the underside of a public toilet seat in Grand Central Station. Amen
    Hi Paul–
    If these scumbags (both business and political) were to be reincarnated as microbes beneath the public toilet seats in GCS, it would be too good for them.  I would rather see them spend their reincarnated days in the GI tract of a flatulent vegetarian.
    Cheers–
    MRE 

  5. Big. Sigh.
    The Fanjuls are Cuban. In a comment on an earlier post, when I said that immigrants, including and especially Cubans, have a tendency to bring their bad ideas with them, I could have used the Fanjuls as the prime example.
    The Fanjuls are a family who set themselves up as better than the rest of us–better than other Cubans even. They have an aristocratic sense of privilege which forestalls any sense of obligation to their fellow citizens and this country. The fact that they take from the poor in order to make themselves rich by taking subsidies, and by grossly underpaying their already impoverished workforce is seen as their family right. They are multi millionaires on our dime.
    This Old World sense of privilege, which Europe actually gave up two or three generations ago for social democracy, is alive and well in the US. This kind of thing is replicated in various industries in this country, because we as citizens don’t exercise the supervision we are supposed to. Some of us are so in love with the idea of capitalism that we forget that ALL economic systems have a dark side, and therefore, there have to be watchdogs.
    It’s not enough to vote. Our elected representatives get themselves bought all the time. Whether you like Nancy Pelosi or not, we can get rid of the Fanjul situation and all corporate welfare by writing to her and your own rep to fully reform lobbying and corporate donations, right now while the Dems are on a roll.
    Contrast the behavior of the Fanjuls with the founders of Google and Ebay. Both sets of partners are now involved in moving major chunks of their money into the nonprofit sector, improving the way NGO’s work, and tracking results. See the LA Times West Magazine article, last Sunday, Jan 21.07 I tried copying it into my comments and couldn’t. But the difference in behavior between the founder of EBay and the Fanjuls is stark.
    Hi LC–
    I wouldn’t hang a whole lot of hope on the likes of Nancy Pelosi.  Did you read about her latest embarrassment?  She was one of the major forces pushing for an increase in the minimum wage, which is a real sacred cow amongst Democrats.  (Most economists say that increasing the minimum wage always hurts the people who need it the most, but that never deters the Democrats because it makes good press.  The latest stats I saw were that only 0.6% of people were earning the minimum wage, and most of those were the teenage children of middle class parents who were working at part time jobs.  94.6% of people working make more than the minimum wage, and so aren’t affected, but it makes great press for the Democrats because people ignorant of economics  buy into it.)  Seems that everyone nationwide and throughout the US protectorate are covered by the new minimum wage laws except for a fruit canning industry on one of the Pacific islands.  That industry was exempted and so can continue to pay its employees (who are American citizens) at sub-minimum wage levels.  It turns out that the headquarters for this fruit canning outfit is domiciled in Nancy Pelosi’s district.  I’m sure that this exemption was an oversight on her part. Yeah, right!

    In my opinion, the only slimebags and crooks bigger than the Fanjuls and others of their ilk are the politicians who are supposed to be representing our interests yet sell them out.
    Cheers–
    MRE 

  6. Mike–great post. I’m too cynical to be surprised by this. Disappointed, yes, but not surprised. What else do you expect from a government that has declared war on cigarette smoking, but gives subsidies to tobacco growers?
    Hi Paul–
    Thanks.  I’m not surprised.  I’m sure there are thousands of examples of the same thing.  It sucks.
    Cheers–
    MRE 

  7. This whole thing stinks.
    As far as putting eBay on a pedestal is ridiculous. They provide horrible customer service and enjoy their autonomy over their sellers’ accounts and find it amusing to freeze funds or block users whenever it strikes their fancy.
    The Democrats and their obsession with raising the minimum wage can take a long walk off a short pier. I lost my job due to the state of New Mexico raising their minimum wage. They sure ‘helped’ the little guy, there.
    If the government deems necessary to ‘protect’ American workers and industries by constant hand-outs, I should start a lobby to receive subsidies for towing ice bergs and keeping the “ice box” traditions alive. Yes, my trade may be out-dated and obsolete but it’s an American way of life and, by God, it should be supported by the government.
    Hi Scott–
    Thanks for the comment.  I tend to agree.
    Cheers–
    MRE 

  8. Dr Mike,I’m mystified as to why you would refer to increasing the minimum wage as an embarrassment. Since we all know that that has been the standing Democratic position for quite a long time, why would Pelosi or any other Dem be embarrassed about it?
    Just so that you know, the de facto minimum here in Orange County is about $10.00. A small business like mine can’t get anyone to answer our ads for less. Whether Dem or Repub, for or against, the minimum wage is a non issue, as so many industries outside of food service can’t offer it and expect to employ anybody.
    It just shows how politicos are always behind the times — Repubs scream that it should stay where it is even though people are already paid more, and Dems scream about a guarantee that already been surpassed.
    So once again, I would suggest getting feelings out of the way, getting in touch with Pelosi and declaring how angry you are that the minimum wage issue has been attached to the ethics issue and that she make sure that the ethics of the Legislative Branch of the United States Government get taken care of. Get in touch with Boxer and Feinstein and strongly suggest the same thing.
    Hi LC–
    I didn’t say that increasing the minimum wage was an embarrassment, I said that Pelosi was embarrassed because she was at the forefront of the movement to increase the minimum wage when it was discovered that the only exemption was to a company headquartered in her district.
    Best–
    MRE

  9. Here’s the thing, the laws of economics say that if corn syrup and sugar were priced at their ‘real’ price by the laws of supply and demand, wouldn’t there be an actual increase in sweetener consumption if not by people buying more of the slow poison(s), then
    food manufacturers adding more of it to processed foods as fillers?
    This is not to say that all those tax dollars shouldn’t be returned to us or the government (depending on your political persuasion). This will only happen when the politicians decide that they won’t be be elected by taking these contributions, because people won’t vote for them. I don’t know if this will happen, but it may be the only chance for our democracy.
    Hi Mark–
    I suppose that another way to look at it is that if the prices of products containing sweeteners decreased, people might use the savings to buy meat, vegetables and other more nutritionally dense products.
    Cheers–
    MRE 

  10. “94.6% of people working make more than the minimum wage, and so aren’t affected, but it makes great press for the Democrats because people ignorant of economics buy into it.)”
    Where do you get that statistic? Most people in this country are working poor. Maybe they make a few cents more than minimum wage, but their buying power has been impacted by inflation. The middle class is quickly vanishing due to the policies that funnel money to the corporate plutocrats, like you said above.
    There seems to be a misconception that raising the minimum wage to a decent level is bad. $5.15 today is the equivalent of only $3.95 in 1995 — lower than the $4.25 minimum wage level before the 1996-97 increase.
    http://www.epinet.org/content.cfm/issueguides_minwage_minwagefacts
    I think that some of us are unaware of the daily struggles that most people face just to put food on the table. I volunteered in a food pantry for many years (stocked to the gills with HIGH CARB foods, but that’s another rant for another time!) and you’d be surprised how many people would go hungry without some kind of assistance. The majority of these people were working poor, and two income working poor in this particular neighborhood.
    Hi Kathy–
    The fallacy of the minimum wage is that raising it hurts the very people it aims to help. It’s an economic truth that people are usually paid what their efforts are worth to the person doing the paying. If I pay someone $30 per week to mow my grass, I end up paying about $120 per month during the summer to keep my lawn looking nice. If the government comes in and says that I have to pay $40 for someone to mow my grass, then to stick with my same $120 per month grass-mowing budget I simply have my yard mowed every week and a half instead. It’s the same with the minimum wage. If I have a business in which I have hired a couple of teenagers (the typical people making minimum wage) at $5.15 per hour and I need to hire another because work has expended, but our friends in Washington raise the minimum wage to $7.25 I would probably not hire another teenager, but would instead make the two already on the payroll work a little harder.  The people demanding an increase in the minimum wage feel wonderful because the two kids now working are making more, but they don’t see that it has cost another kid a job.

    The laws of economics are as inviolable as the laws of physics, and trying t refute them makes just about as much sense as trying to refute gravity.  People can try, but the law of unintended consequences always rears its ugly head.
    Cheers–
    MRE 

  11. You closed with:

    Now we’ve reached the point at which our goverment is forking money over to the sugar industry and the HFCS industry, both of which are undermining the health of America. At the same time, this same government is funding the U.S. Nutritional Guidelines (our old friend the Food Pyramid), which encourage us to eat plenty of complex carbohydrates. And the same government is worried about the burgeoning obesity and diabetes epidemics and funding all sorts of groups to tell us we need to reduce the amount of fat in our diets.

    The link that you missed is the intense lobbying by food companies, and likely ADM, Monsanto and other “ingredient” companies to mold the new Food Pyramid (which looks a lot like the old one, when you really look at it). In essences, you have the government subsidizing companies and those companies then turning those subsidies into political influence, new favorable laws, absurd science standards and practices, and an Official recommendation to eat more sugar and corn, oddly enough, some of the big subsidy recipients.
    The web is very tangled indeed and is fully in support of my term for our system of government, “Dollar-ocracy”. It is a government of the money, by the money and clearly for the money. Ultimately, I would set agricultural subsidy policy back to what it was during FDR’s first two terms. It worked better for farmers, well for the government, and well (but less well than current system) for giant conglomerates.
    Hi Max–
    I agree.  The web of influence is indeed complex.
    Cheers–
    MRE 

  12. Re Nancy Pelosi and the minimum wage bill exemption: American Samoa (where there’s a Starkist Tuna plant owned by the San Francisco-based DelMonte Corp) was exempt from the recently passed minimum wage bill because wages there are already regulated under US law, and have been since 1938. Not because Nancy Pelosi did a favor for a company in her home district. See http://www.dailykos.com/storyonly/2007/1/12/192142/663 for a good analysis, with a number of links to solid, reliable source material.
    When repeated enough in the media, political spin can morph into what many assume is fact — not unlike the “cholesterol hypothesis”.
    Love your blog and find it fabulously spin-free!
    Hi Amanda–
    Thanks for the kind words about the blog.
    I suspect the truth of the Nancy Pelosi/minimum wage debacle lies somewhere between the reports of the far right Washington Times and the far left Daily Kos.
    Cheers–
    MRE

  13. Thanks, Kathy for posting that page as I have been trying to google for info and not coming up with the right phrase to get this research.
    Dr Mike, I think you need to go to the epinet.org website and download the full pdf and look at table 1 on page 20. Their research doesn’t jibe at all with the statistics you quoted.
    Also near the bottom of the facts at a glance page, they state there is no evidence for the claim that raising the minimum wage hurts business or jobs. If you would post the website where you found your statistics it would be interesting to compare.
    Hi LC–
    I found my stat in the Wall Street Journal a week or so back.  I’m sure I remember it accurately because it was astounding to me. 
    I don’t care what the website says about an increase in the minimum wage not costing jobs because it is a function of the laws of economics.  If price goes up, demand goes down.  Even if the government drives the price up, the demand still falls.  If the price of labor rises, then the demand for that labor will fall.  If I read a website that told me that showed me statistics ‘proving’ that objects on the earth don’t fall toward the ground, I wouldn’t believe it.  Same holds for one that shows statistics ‘proving’ that the laws of economics  can be violated.
    Cheers–
    MRE 

  14. Dr Mike, during the Irish potato famine, as the price of scarce potatoes went up, families sacrificed other necessities to keep up with the prices. This function of economics has a name, although it’s been so long since I took Econ 101 that I can’t remember. Considering that economists in the past have referred to their own discipline as voodoo, I wouldn’t consider the laws of economics to be written in stone, anymore than in any other social science.
    Please see below for a critique of a WSJ op-ed on the minimum wage in Sept 05.
    http://www.epinet.org/content.cfm/webfeatures_viewpoints_slayers
    Job Slayers or Fact Slayers? The Wall Street Journal’s flawed argument against raising the minimum wage
    a little excerpt:
    “Nor do economists view the issue with the monolithic disapproval that the Journal presents. Last fall, 562 economists signed a letter agreeing that “the minimum wage has been an important part of our nation’s economy for 65 years.” Further, they agreed that “as with a federal increase, modest increases in state minimum wages in the range of $1.00 to $2.00 can significantly improve the lives of low-income workers and their families, without the adverse effects that critics have claimed.” The signers included four Nobel Laureates, three of whom have served as presidents of the American Economic Association, the mainstream, economists’ professional association.”
    As I see it, that 562 economists who are going against the interests of corporations to state their findings regarding the impact of the minimum wage. Too bad the FDA and the ADA can’t find it within themselves to do the same thing regarding the American diet.
    Hi LC–
    I don’t think it was economists who referred to their discipline as voodoo, it was George H.W. Bush who made that reference about Ronald Reagan’s proposed economic plan during the 1980 primary.
    I don’t put a lot of faith in the Economics Policy Institute (EPI) that wrote the op-ed piece you referenced.  The EPI was started by (among others) Robert Reich and Lester Thurow (not exactly your mainstream economists) and is funded by organized labor, so it would make sense that they advocate an increase in the minimum wage.  As the French say, Cherchez l’argent.
    Cheers–
    MRE 

  15. Mainstream? If “mainstream” had any meaning, I wouldn’t be doing low carb. Reich and Thurow have four Nobel laureates on their side, I think I’ll roll with that for the time being.
    I’m still having trouble googling to get info that refutes what I’ve found at EPI. I can’t find a link to it from the WSJ, and if anyone could provide the links, I’d appreciate it. I really want to compare the findings, and draw my own conclusions.
    Hi LC–
    Maybe ‘mainstream’ was a poor choice of words given the connotation it has in the area of nutritional science. What I meant by ‘mainstream’ was economists who have no overt political agenda. Reich (I don’t even know if he’s truly an economist), Thurow and Paul Krugman do not fall into that category.
    I searched the WSJ archives using the term ‘minimum wage’ and came up with a hundred articles over the past month or so. I went through the ones I thought might have contained the figure I remember, but couldn’t find the actual article. I still have more to go through, but I’m now wondering if I saw the figure somewhere else. I’ll keep looking. I did come across another piece (by a Nobel laureate, no less) that addresses the issue nicely. It costs unless you have a WSJ online subscription, which I do. I’ll risk the wrath of the WSJ by reprinting it in full below.

    How to Make the Poor Poorer
    by Gary S. Becker and Richard A. Posner
    The strong bipartisan support for increasing the federal minimum wage to $7.25 an hour from the current $5.15 — a 40% increase — is a sad example of how interest-group politics and the public’s ignorance of economics can combine to give us laws that manage to be both inefficient and inegalitarian.
    An increase in the minimum wage raises the costs of fast foods and other goods produced with large inputs of unskilled labor. Producers adjust both by substituting capital inputs and/or high-skilled labor for minimum-wage workers and, because the substitutes are more costly (otherwise the substitutions would have been made already), by raising prices. The higher prices reduce the producers’ output and thus their demand for labor. The adjustments to the hike in the minimum wage are inefficient because they are motivated not by a higher real cost of low-skilled labor but by a government-mandated increase in the price of that labor. That increase has the same misallocative effect as monopoly pricing.
    Although some workers benefit — those who were paid the old minimum wage but are worth the new, higher one to the employers — others are pushed into unemployment, the underground economy or crime. The losers are therefore likely to lose more than the gainers gain; they are also likely to be poorer people. And poor families are disproportionately hurt by the rise in the price of fast foods and other goods produced with low-skilled labor because these families spend a relatively large fraction of their incomes on such goods. And many, maybe most, of the gainers from a higher minimum wage are not poor. Most minimum-wage workers are part time, and for the majority their minimum-wage income supplements an income derived from other sources. Examples are retirees living on Social Security or private pensions who want to get out of the house part of the day and earn pin money, stay-at-home spouses who want to supplement their spouse’s earnings, and teenagers working after school. An increase in the minimum wage will thus provide a windfall to many workers who are not poor.

    Some economists deny that a minimum wage reduces employment, though most disagree. And because most increases in the minimum wage have been slight, their effects are difficult to disentangle from other factors that affect employment. But a 40% increase would be too large to have no employment effect; about a tenth of the work force makes less than $7.25 an hour. Even defenders of minimum-wage laws must believe that beyond some point a higher minimum would cause unemployment. Otherwise why don’t they propose $10, or $15, or an even higher figure?

    A number of countries, including France, have conducted such experiments; the ratio of the minimum wage to the average wage is much higher in these countries than in the U.S. Economists Guy Laroque and Bernard Salanie find that the high minimum wage in France explains a significant part of the low employment rate of married women. Mr. Salanie has argued that the minimum wage also contributes to the dismal employment prospects of young persons in France, including Muslim youths, an estimated 40% of whom are unemployed.

    As a means of raising people from poverty or near poverty, the minimum wage is inferior to the Earned Income Tax Credit, which compensates for low wages without interfering with the labor market or conferring windfalls on the nonpoor. EITC is not completely devoid of effects on efficient resource allocation, because like any other government spending it is defrayed out of taxes, and it has been abused by underreporting of income and overreporting of dependents. But it is a more efficient tax than the minimum wage as well as being more effective in redistributing income to the poor.

    So why push to increase the minimum wage rather than the EITC? For one thing, unions strongly favor the minimum wage because it reduces competition from low-wage workers (who, partly because most of them work part time, tend not to be unionized) and thus enhances unions’ bargaining power and so their appeal to workers. For another, increasing the EITC would mean an increase in government spending, which might require higher taxes; there is no public support for explicit tax increases and most people don’t understand that regulatory laws can have the same effect as taxes.
    Moreover, poor people tend not to vote; and the number of nonpoor who’d be directly benefited by an increase in the minimum wage, when combined with the number of nonpoor workers whose incomes would rise because of reduced competition from minimum-wage workers, probably exceeds the number of nonpoor who would lose jobs. Teenagers would be among the hardest hit — and few of them are voters (if under 18, they’re ineligible). While workers who receive a wage increase when the minimum wage is hiked realize they’ve benefited from the hike, many hurt by the hike don’t realize it; teenagers and retirees who have trouble finding a job are unlikely to realize that it’s because there are fewer jobs in the economy for minimum-wage workers.
    Let’s hope that if Congress passes a stiff increase in the federal minimum wage, George Bush will emulate Mayor Richard Daley and veto it. Several months ago the Chicago City Council, by a lopsided but not veto-proof vote, passed an ordinance requiring companies that have more than $1 billion in annual sales, and own stores in Chicago having at least 90,000 square feet of floor space, to pay Chicago employees a minimum wage of $9.25 an hour plus $1.50 an hour in fringe benefits, respectively rising to $10 and $3 by 2010. About 40 stores would have been affected.
    The ordinance was surpassingly foolish. The retailers that would have been most affected, such as Wal-Mart, Target and Home Depot, are at best only marginally interested in placing stores in large cities because space for large stores and for the parking they require is much more expensive than in suburbs and smaller towns. Moreover, these companies could offset much of the effect of the ordinance by opening more stores in suburbs within easy reach of Chicago, or by holding their floor space to just below 90,000 square feet. Fewer jobs would be available to low-skilled workers in the city, and families with modest incomes who seek low prices rather than elaborate service would be hurt more than the affluent by the increase in prices and reduced availability of big box outlets.

    Who would favor such a bad ordinance? Conventional supermarket chains and clothing stores, of course, and unions — the latter not only for the usual reasons but also because big box companies oppose unions; the ordinance sent a signal that unions have enough political clout to make life difficult for large nonunion retailers. The absence of opposition to the ordinance from low-income consumers is not surprising because they are not organized to exert political pressure. The aggressive support of the ordinance by most of the council’s black members is more difficult to understand, but the explanation may be that they are allied with unions. They may have realized that their constituents would be harmed by the ordinance, but believed that in return for taking this hit they would get the support of unions for measures that would help low-income families.

    The failure of the Chicago ordinance and related local measures helps to explain the push to raise the federal minimum wage. The ordinance would have been particularly destructive — hence Mayor Daley’s veto of it — because the smaller the scope of a minimum-wage increase, the more easily it is evaded, though possibly at great social cost. A federal increase would have a smaller social cost per worker covered, but presumably a larger overall social cost. Chicago’s “big box” ordinance is evidence, if any is needed, that politics can override economic sanity. One can only hope that this lesson will not be repeated on the national stage.
    Mr. Becker, the 1992 Nobel economics laureate, is professor of economics at the University of Chicago and senior fellow at the Hoover Institution. Mr. Posner is a federal circuit judge and a senior lecturer at the University of Chicago Law School.

    So, we have dueling economists. It’s up to you to decide who makes the better argument, which, I’m sure, will be influenced by your own political leanings.
    Cheers–
    MRE

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