The Definition of Insanity

The Definition of Insanity

The View from the Middle

Most people will agree that Albert Einstein was a pretty smart guy, and most also attribute a particularly concise and yet precise definition of insanity to him.  I think that definition is a great place to start my commentary today.

Einstein said that, “insanity is giving the government more money or authority and expecting something other than waste, fraud, abuse, corruption, stupidity or plain old ineptitude.”  OK, that might be a little bit of a paraphrase, but it embraces the spirit of Einstein’s point.  I think Albert might just smile and nod approval of my interpretation of his famous quote.  It seems that there are new examples of this insanity every day.  Let me share a couple of recent doozies with you.

In June of 2010 the President signed Obamacare into law.  This bill was over a thousand pages long and arguably never read completely by any Senator or Representative before it was voted on.  Nancy Pelosi famously said that, “we must pass the bill so we can find out what’s in it.”  And boy, are we finding out.

I wrote an article for this paper in November of 2012 and suggested that this law would encourage businesses to eliminate jobs due to certain provisions in it and move some other jobs to part time.  This is especially true of companies that employ between 50 and 99 people.  I pointed out that this law incents companies not to expand if they are close to those numbers or to eliminate jobs if they are slightly over those thresholds. 

Now, the administration has offered to delay the employer mandate to those mid-sized companies (50 to 99 employees) until 2016.  In order to get that extension, however, they must sign an affidavit under penalty of perjury that they are not eliminating jobs or reducing hours because of Obamacare. 

So let me be perfectly clear about what our government has done here.  It has passed a law that incents businesses to reduce headcount, but is now threatening to punish people if they actually do what the law encourages.  Is that not insane?  It’s also a little scary that I understood this threat before the White House did.  Wouldn’t it be better just to eliminate these perverse incentives?  But wait, there is even more lunacy coming down the track very soon.

In March, Democratic senators, including Sherrod Brown from Ohio, will be proposing a raise in the minimum wage from the current rate of $7.25, established back in 2009, to $10.10.  That’s nearly a 40% increase.  That seems a little high, especially when you consider that median household income in the US has fallen 4.4% over the same time period. 

But the news is even more frightening for the restaurant industry.  This bill will include a mandatory provision for restaurant workers to get 70% of that minimum wage, or $7.07, in addition to their tips.  This is almost three times today’s base of $2.63 for our servers here in Arkansas, which represents 37% of the current minimum wage.  A far cry from 70%.

 Where did they come up with these numbers?  President Obama seems to have landed on $10.10 because it is easy to remember.  Really?  Did they use a dartboard to come up with the 70%?  I can see no other explanation other than insanity or incompetence.

Let’s try to form a responsible position on the minimum wage by laying out the actual facts.  If you went back to 2009, when the minimum wage was increased to $7.25, and applied inflation results to it, the new minimum wage today would be $8.04.  That is a long way from $10.10.

Here’s a nice compromise.  Let’s raise the minimum wage to $8.25.  This is a number that the CBO (Congressional Budget Office) claims is about right.  Then, we could tie it to inflation so that we don’t punish entry-level workers between adjustments and we don’t have to deal with this issue every year.  We could also apply the 37% ratio we have for our waiters and waitresses here in Arkansas for a new base hourly rate of $3.05 before tips.  This is appropriate for the workers and digestible for business owners. 

If the plan they are proposing gets passed, it could cost the country and particularly the restaurant industry millions of jobs.  It could also force full service restaurants to raise their prices as much as 20% just to keep up.  How many restaurants won’t even survive?  What good is a 70% pre-tip minimum if the restaurant where you worked has to close?  How are consumers going to like paying that 20% price increase?

Don’t things like this make you wonder what our representatives in Washington are thinking?  Maybe they need to come back to their respective states and get real jobs that force them to deal with the insane laws they create.   Bottom line - they make a strong case for term limits.