Monthly Archives: October 2015

jeb bush should drop out

Jeb Bush Should Drop Out

Jeb Bush should drop out of the race.

Such calls have been accumulating over the past couple of weeks, though just a few days ago I scoffed at them.  After all, Jeb(!) has over $10 million in the bank, a superPAC with around $100 million, and name recognition.  While the advantages hadn’t translated into strong polling, holding around 7 percent nationally given the strong swing towards anti-establishment candidates didn’t seem bad, especially given his financial longevity.  He still seemed like the best bet for the Republican establishment and to prove that, all he needed was one good debate performance.

He had the opposite: Rather than shining in the CNBC debate and proving his viability as a candidate, Jeb floundered.  He lost in his one spar with Rubio (whom he would need to put away in order to win the nomination) and set Chris Christie up for a homerun with regards to fantasy football.  Jeb’s best line of the night involved giving Democrats a “warm kiss.”

So, why does this debate spell the end for Jeb’s campaign?

He lost to Rubio.  Rubio and Jeb represent the establishment’s greatest chances of defeating insurgent candidates like Trump, Carson, and Cruz.  With both in the race, establishment and moderate support is divided roughly in half, preventing a swirl of support lifting one candidate and providing valuable momentum.  Jeb proved he cannot beat Rubio – the mentee triumphed over the mentor.  With just over two months until votes are cast, it’s time for the establishment to rally around one candidate.  It makes sense to support the candidate who can win in head-to-head spars.  Thus, Rubio.  Jeb needs to drop out to quit siphoning support and dollars away from Rubio’s campaign.

But what about Jeb’s aforementioned advantages?  In turn:

  1. Yes, Jeb has money, but he’s also burned through a lot and his torrid pace of fundraising is slowing, as exemplified by his dramatic budget cuts. Ten million in the bank is a lot and would support strong campaign infrastructure, Jeb’s proved that substantial monetary investment does not translate into support – he would need a lot more money to boost his image, which brings us to point two.
  2. Right to Rise, Jeb’s superPAC, has around $100 million and seems ready to assume traditional campaign activities (such as a strong ground game). Yet as seen by the failed candidacies of Scott Walker and Rick Perry show that well-funded superPACs can’t singularly carry a campaign.  Jeb’s superPAC has already spent millions in ads to little avail.  We don’t know the fiscal affairs of Right to Rise at the moment (are donors still cutting checks to a stagnant campaign?), but it would seem best for the PAC to retire and give its money to Rubio’s superPAC.  Most importantly, dropping out would allow prominent bundlers and donors to give to Rubio’s campaign and superPAC (and some donors have already switched allegiances).
  3. Lastly, Jeb has name recognition, but it’s not helping him. He’s not viewed favorably by the Republican electorate.

Rubio, too, has problems: he posted very weak fundraising numbers in the third quarter (just $6 million) and he doesn’t lead the polls in any state.  He also doesn’t have many endorsements, a show of establishment strength (though neither does Jeb, and Jeb’s pace of endorsements has slowed significantly since Labor Day).  Yet it would seem likely that the party rallying around Rubio would increase poll numbers – Rubio has a high net favorability, which can be seen as a ceiling on poll numbers – and better his fundraising as donors get off the sideline to support the establishment candidate.  Rubio has much to gain whereas Bush has little.

Furthermore, even if Bush were to dropout, the establishment would still have backup candidates in case Rubio imploded – Kasich and Christie, plus the potential of a late-game savior such as Romney, Mitch Daniels, Haley Barbour, or even Paul Ryan.

The time has come for Bush to exit the race; Republicans need to rally around a fresh face, one who can potentially win the general election, one who can excite the voters.

Rubio is the answer.

A Profile: Donald Trump

IssueViews and Goals
EconomyOpposes free trade and supports protectionism - wants a 45 percent tariff on Chinese exports, though doing so would raise consumer prices by that amount and might lead to a trade war.
ImmigrationHe wants to build a wall on the U.S.-Mexico border - for which Mexico will pay, though Mexican leaders scoff at the idea - and hopes to end birthright citizenship, though doing so is likely unconstitutional.
HealthcareTrump would "save Medicare and Medicaid" and replace Obamacare with "something better" - again, though, he offered no ideas or policy plans.
Foreign PolicyCalls himself "the most militaristic guy ever," vehemently dislikes the Iran Deal, would bomb ISIS though he flip-flops on sending ground troops, and wants to pull out of NATO.
EducationNo education plan, but he swindled students out of thousands of dollars with Trump University.
TaxesIn 2000, he advocated for a one-time 14.25 percent tax on individuals worth more than $10 million; now, however, he makes no mention of such an idea and offered a tax plan that would increase the national debt by over 80% in 20 years.
EnergyHis campaign has not released any energy policies.
Gun ControlThough he used to support lengthening to waiting period before purchasing guns, he no longer endorses such a policy and claims to be very pro-Second Amendment.
EnvironmentCalled climate change - accepted as true by almost all of the scientific community - "bullshit."

Democrats and the $15 Minimum Wage

One of the many divides between moderate, establishment Democrats and the party’s progressive wing is the minimum wage.  By and large, moderates favor raising the minimum wage, but only to $10-$12; progressives, on the other hand, have rallied around a $15 minimum wage.  Economic literature finds that a slight increase in the minimum wage does not have an adverse (or dramatically adverse) effect on the economy.  However, literature is sparse on the effects of doubling the baseline wage.  As such, neither side can proclaim to be “right,” but economic theory does favor one over the other.

At risk of substantially over-simplifying economics, there are three cost components business must take into account: capital, land, and labor.  It is the latter two whose importance arises when considering minimum wage increases.

To understand the impact of each on a business, let’s consider two cafes, one in San Francisco and the other in Oklahoma City.

The capital inputs of a cafe include ovens, stoves, etc (basically all the physical goods used in the production of food).  These costs are more or less equivalent in the two cities.  An oven does not cost more – or significantly more – in San Francisco than in Oklahoma City (if such a discrepancy existed, entrepreneurs would establish a business to buy tables in Oklahoma City and sell them San Francisco.  Doing so would increase table demand in OKC, raising prices, and increase supply in SF, lowering prices, thus eliminating the gap).  Capital costs, then, are largely the same within industries, regardless of geographic location, and are about the same in absolute dollar amounts in both cafes.  These costs do not amount to a significant portion of overall business cost.

Land, on the other hand, differs greatly in value between the two cities.  Rent, as everyone knows, is remarkably high in SF – much higher on a square-foot basis than in OKC.  Should our San Francisco cafe wish to be the same size as our cafe in Oklahoma City, it must pay more for rent than our OKC cafe.  We’ll assume both opt for a location the same size.  Because rent in SF is so expensive, it represents a very large percentage of total costs for the SF cafe; for OKC, on the hand, low rent means that the cost of land does not represent a large amount of total cost.

For sake of simplicity, we’ll assume labor costs the same in each city (San Francisco recently adopted new laws to raise the minimum wage, which makes labor more expensive in SF than in OKC).  Each cafe pays its workers the federal minimum wage – $7.25/hour.  The relative burden of this wage, however, is not the same in the two cafes.  Labor is not a large proportion of total costs for the SF cafe because rent is so expensive.  In other words, since rent costs so much, the SF cafe is relatively flexible to wage levels: it can raise wages without increasing costs by a large percentage (cost increases are transmitted to consumers through higher prices).  Our OKC cafe, on the other hand, experiences a (much) higher percentage of costs related to labor than other inputs.  Therefore, increasing the price of labor by any amount substantially impacts overall costs and translates to increased prices.

Raising the minimum wage, then, impacts the two cafes differently.  The SF cafe can withstand higher labor costs without increasing its prices because increasing labor does not greatly impact overall costs.  In OKC, an increase in the price of labor causes overall costs to rise by a significant amount, thus forcing the cafe to raise its prices.

This demonstrates the problem of a high federal minimum wage.  The cost of living varies greatly over the country, there is no one-size-fits-all solution – what works in New York City likely won’t in Jackson, Mississippi.  Costs may not increase in NYC, but they will in Jackson.

In the worst case scenario, businesses in Jackson or other low-cost areas (like our OKC cafe) simply won’t hire workers at a higher wage rate because they won’t be able to offset costs – there’s only so much a company can raises prices before consumer demand falls tapers.

While this relies on theory, it seems a logical reason to disfavor a high national wage.  The best policy, seemingly, is to have a lowest-common-denominator federal minimum wage and then urge states and counties to raise their minimum wages as necessary.  This would minimize cost-related price increases or layoffs while allowing for local flexibility in policymaking.

Unfortunately, Democrats like Bernie Sanders and Martin O’Malley tend to eschew market realities when advocating for a $15 minimum wage.  If the Democratic Party were to follow suit, Republican claims that the Democrats are clueless about the economy would actually carry weight.