One of our problems politically is that our politicians — on both sides of the aisle — are often more interested in firing up their base and scoring political points than in actually trying to solve problems.
JP Morgan CEO Jamie Dimon is a super smart and accomplished guy. Freshman Representative Katie Porter has a resume filled with Harvard and Yale. You can actually fantasize that these two people, sitting quietly in room, might actually be able to make progress on a problem. But there was recently a hearing that exemplified why we disagree with newly retired Brian Lamb that the “transparency” of C-Span is a blessing.
Brian Lamb launched the cable network in 1979, and he defends it on the basis of transparency. But the problem is that transparency changes the nature of what you are being transparent about. In this case, Representative Porter was more interested in playing to the cameras — complete with visual aids — than in actually analyzing and moving toward solving any problem
The gist of the Congresswoman’s speech — it would be unfair to call it a question — was that it would be a tough life for a single mother of a six-year-old with a take home pay of $29,100 a year to live in their own apartment in Irvine, California. CBS news says Orange County, where Irvine is located, is the 9th most expensive city in America. Irvine’s cost of living is 211.5% of the average in the US.
The numbers worked out like this:
The $35,070 includes a $750 bonus the bank pays.
The congresswoman asked Mr. Dimon to redo the budget for this hypothetical employee so she could make ends meet. For the most part, Mr. Dimon refused the bait and simply explained he would have to think about it.
The congresswoman asked a series of odd questions, asking Mr. Dimon if he would recommend that this hypothetical employee should get a Chase credit card and pay interest or if she should write bad checks and pay overdraft fees.
Jamie Dimon knew she wasn’t actually interested in exploring this problem, so he mostly deferred answering as anything he said would just be attacked.
So we thought we could be a voice and let the congresswoman know what we thought about this line of questioning.
First— Representative Porter does something terrible in making it seem like JP Morgan Chase did something bad to this hypothetical woman. Obviously, the hypothetical constituent is tight on money so probably goes for an income-maximizing job, so it is reasonable to think that she “works” for JP Morgan specifically because JP Morgan is willing to pay her more than anyone else.
One wonders if Representative Porter realizes what harm she does to the country with a presentation like this. We credit a lot to tax policies, regulation policies and so forth when looking at the economy. But John Maynard Keynes spoke of the Animal Spirits that animate commerce.
Who wants to be in business knowing that if you reach the pinnacle of success and offer jobs to people better than they can get anywhere else you have to sit there and be attacked?
It is such a terrible thing.
Second— Representative Porter is focused on the employer, but Mrs. Porter fails to account for the government’s contribution to this woman’s financial burden. This hypothetical woman’s dilemma is quite substantially influenced by her tax burden.
Representative Porter shows that the hypothetical woman paying $5,970 in tax, or 17.02% of her income. This is a lot, but this significantly understates her tax. For example, of that $150 a month this hypothetical person is spending on gasoline about 98 cents per gallon is taxes, which are government-dictated costs. Right now gasoline is Irvine, California, is just over $4 a gallon (Costco is $3.85) — so, roughly 25% of her gas cost is actually taxes, fees and regulatory costs:
- Federal excise tax — 18 cents
- State excise tax — 42 cents
- State and local sales tax — 8 cents
- State underground storage tank fee — 2 cents*
- Additional costs for compliance under Cap & Trade, as well as the Low Carbon Fuels Standard — 28 cents
- Total — 98 cents
* Note: The state and local sales tax is calculated at an average state sales tax rate of 2.25% percent although actual sales tax rates vary throughout California.
Of course, this understates how much of our hypothetical employee’s money actually goes for taxes. When it comes to gas, every service station pays real estate taxes, and everything from refineries to pipelines to tanker trucks are all taxed. These taxes are factored in to the base price of gas at the pump.
And, beyond taxes, government policies can raise costs. Right now although in California, gas is over $4 a gallon, the national average is only $2.90; Alabama is $2.51. This inflated price is heavily influenced by challenges California puts up to building pipelines, refineries, oil exploration, etc.
The general sales tax in Irvine, California is 7.75%. Although property tax rates are low in California, the value of each unit is high, so taxes can still be substantial. Cell phone tax, which combine Federal and State, is 19.87% in California.
Obviously it is impossible without knowing specifics, but it seems highly likely that direct and indirect taxes are costing Representative Porter’s hypothetical constituent a good third of her income.
Yet Representative Porter seems completely uninterested in adjusting this burden, even though only a small adjustment would cover the $567 per month gap she identifies.
Third— Representative Porter doesn’t deal with the reality that loads of people work more than 40 hours a week. Now, perhaps, Chase won’t offer overtime hours, but, if so, again, this may be due to Federal Legislation that would require Chase to pay time-and-a-half to her — but not to another employee. In other words, if they add a Saturday opening to a branch, the government legally disadvantages this woman as Chase would have to pay her 50% more than if they hire someone just to do the Saturday shift. Again, this is a problem that Representative Porter seems completely uninterested in solving!
But, of course, the hypothetical constituent could work elsewhere to pick up extra money. Many people do.
Fourth— It is certainly nice to be able to live and work in the same town and avoid commutes. But Irvine is pricey and lots of Americans have to commute. Maybe if she looked in Costa Mesa or southern Orange County, our hypothetical constituent might be able to shave a few hundred dollars off of the rent. Or, maybe they could get a bigger apartment and split it with a friend or relative.
Fifth— Why, exactly, is housing so expensive in Irvine, California? We can investigate lots of possibilities, but the median rent for a one bedroom apartment nationally is $951, and right next door in Arizona it is $849 and in Arkansas it is $574. Factored into rents, there are zoning rules, density restrictions, union work requirements, and lots of other factors that have little to do with Jamie Dimon and a lot to do with government regulations.
Sixth— Representative Porter seems to have left out the father of the child. In America, fathers are required to help support their children. Now, possibly this is a father who can’t or won’t pay or is dead, but there is no mention of him at all. If he was contributing $150 a week, that would also cover the deficit with room to spare. Even if he is dead and had no private insurance, there would still be Social Security benefits for children.
Seventh— friends and family. There is a mention that this is a first job, so, presumably the hypothetical mom and hypothetical daughter were living somewhere else up to the moment she got this job — probably with a parent or grandparent. Someone was watching the child while Mom was in school, etc. Yet, somehow they are now kicked out without any help at all.
This is not the typical experience — certainly not for someone together enough to graduate high school, get a job at a bank and sustain a $1,600-a-month apartment. Maybe grandma or an aunt will step in and watch the child after school for an affordable rate. Maybe someone has an older car they will give her when they are done with it.
Even without family, many people are able to make agreements with friends and neighbors. Sometimes they may watch each other’s kids as they are on different schedules, for example.
Eighth— there is a hint in here that companies can just pay people whatever they want. In the very short term, this may be true. But, very quickly, if JP Morgan Chase overpays its employees, Bank of America will be able to underprice Chase, and quite quickly the JP Morgan Chase jobs will disappear.
Ninth— Higher wages sound great, but they often lead to either consumers taking on the work themselves or to automation. Remember the minimum wage is always zero if you cannot get a job. The idea that if you just pay more you will do employees a favor is not necessarily true.
Tenth— It would be desirable if Representative Porter said a word about personal responsibility. We don’t know how old this hypothetical person is, but Representative Porter says it is her first job out of high school, and she has a six-year-old child, which might mean the mother was raped at 11 years old. If so, shame on Representative Porter — she uses as an example a woman who was raped at 11, has a baby at 12 and who is thrown on the streets without a friend or relative willing to help at 18. Since the percent of 10- to 12-year-old girls who have babies is less than 0.1% of the age group, and many of those surely are taken care of by their families, Representative Porter is trying to make public policy based on extreme circumstances, which pretty much guarantees bad public policy. She should be ashamed of herself.
If, instead, we assume that the hypothetical constituent is older and she had her six-year-old as an adult, wouldn’t it be helpful for Representative Porter to use her platform to point out that the entire financial problem she details is due to the fact that her constituent had a child both out of wedlock and before she could afford one?
If she had postponed having a child until she could afford a child, the hypothetical constituent wouldn’t have the child care costs, food costs would go down, etc., and it would be easier to have a roommate and split the housing cost. Representative Porter gratuitously noted that Jamie Dimon has a big compensation package, $31 million, and that, somehow, this is reason the Congresswomen’s hypothetical constituent can’t make ends meet. Of course, only $1.5 million of that compensation package is salary. The rest is various kinds of performance-based pay. Besides, JP Morgan Chase has 256,105 employees, so if Jamie Dimon worked for free and the $31 million was divided among all the employees, that would only be $121 for each employee.
Many are concerned about pay gaps between CEOs and the lowest paid employee or some other metric. The use of computers and other technologies allows for much larger organizations. Rowland Hussey Macy had one store. He was a big success and expanded into neighboring buildings. But it was difficult to manage other stores. To compare that job to say, the CEO of Amazon.com, who can use modern technology to work on a totally different scale, is simply bizarre.
The truth is that the pay of the CEO is almost always insignificant in the scale of these organizations. What most benefits their employees is not having a low-salaried CEO; it is having a CEO that is successful, can make the company grow and thus create new opportunities for its employees.
Representative Porter could help people like her hypothetical constituent, but she would have to thank people like Jamie Dimon for creating opportunities and urge her constituents to be responsible. That doesn’t sound like a way to fire up a base.