Asking for a Raise - Hoke Nails It.

How do you go about asking for a raise?  It is pretty tricky!

A reader asks me how to go about asking for a raise.   Tough question, and I don't like to give advice.  If I give you advice and then you ask for a raise and they fire you - am I to blame?  You see why advice-giving is fraught with problems.  You are on your own, here!

But this got me to thinking, the best example I've seen - even if it is fictional - is the scene from Driving Miss Daisy where Hoke Colburn, Miss Daisy's chauffeur, asks his boss, her son "Booley" Werthan, owner of Werthan Bag and Cotton (now Werthan Industries) for a raise.   The way he goes about it is sort of sneaky, but ultimately successful.

(Note:  I cannot find this clip online, the Miss Daisy people are pretty proactive about their copyright claims.  I found the hiring scene above, but it likely will be taken down in short order.)

At first, you might think that Hoke is in no position to negotiate a raise - after all, the movie (and play) takes place in the South before the civil rights era.  Nevertheless, white people were dependent on their black "help" as it were, and in Hoke's situation, Booley is dependent on him to look after his Mother - who after all had a hard enough time adapting to Hoke's presence in the house.  Hiring a replacement would be difficult, to say the least.   Giving Hoke a raise ends up being a lot easier than hiring someone new, even if it was difficult to swallow.

But if you look at the scene, you see that Hoke has done his homework here.  He catches his employer off guard, and has done the research and actually has a job offer (although the doesn't put it that way) and when offered a raise, makes a counter-offer.   This is not to say this always works out. You have to be indispensable to your employer, or at least make it a lot less hassle to give you a raise than to hire someone else.

Because that is what it comes down to - will you leave if you don't get the raise?  Or will they fire you and hire someone cheaper, rather than give you one?   Asking for more money isn't something that you can do without risk.   And no, no one is "entitled" to a raise.

The scene starts out in the outer office of Booley's secretary, the long-suffering yet loyal Mrs. McClatchey.  Note that Booley hasn't scheduled an appointment to talk about a raise.  I think this is a good strategy.  If you telegraph your intent ahead of time, your boss now has time to think about this - and think about whether it is easier to replace you.

Hoke: Morning, Miss McClatchey.
Mrs. McClatchey: Well, good morning to you.
Hoke: Can I see him? 

Once inside, Hoke doesn't get right to the point, after he sits down with Booley.   Rather than ask for a raise, he merely points out that others are hiring and willing to pay more.   Making ultimatums or threatening to quit can backfire - your boss may take you up on the suggestion, or fire you.  No one likes to be blackmailed, particularly by an underling.

Hoke: It's Mr. Sinclair Harris, sir.
Booley: My cousin Sinclair?
Hoke: His wife... The one that talk funny.
Booley: She's from Canton, Ohio.
Hoke:  She's trying to hire me.
Booley: - What?! -
Hoke: Yes, sir. She said: "How they treating you down there, Hoke?" You know how she sound, like her nose stuffed up. So I said, "Fine, Mrs. Harris, just fine, thank you." She said, "Well, you looking for a change, you know who to call."
Booley:  I'll be damned!
Hoke:  I thought you ought to know about it.

Hoke is making it out to be like he is a friend of Booley and alerting him that someone is trying to poach his employee.   But Hoke is also showing, subtly, that he has a hole card to play.  Even if it means working for someone from "Canton, Ohio" Hoke has employment options.

Booley: I'll be goddamned.
Hoke:  Ain't she a mess? Said, "Name your own salary."
Booley: I see. And did you?
Hoke: Did I what?
Booley: - Name your own salary? -
Hoke: Go away. What you think I am? I ain't studying working for no trashy something like her.
Booley: But she got you thinking, didn't she?
Hoke: Well, sir, you might say that. 

Booley is no fool, of course, and he sees Hoke's underlying purpose.  But Hoke again professes his loyalty to Booley.  He would like to continue to work for Miss Daisy (and no doubt would have, even if a raise was not forthcoming).   But he does have options, here - higher-paying options.  And he is presenting this to Booley in a very tactful, yet compelling manner.

Booley: Name your salary.
Hoke: That's exactly what she said.
Booley: Well, how does $65 a week sound?
Hoke: Sounds pretty good, sir. Course, $75 sounds better.
Booley: It sure does! Beginning this week.
Hoke: That's mighty nice of you. I sure appreciate this.
Booley: Thank you.
Hoke: You ever have folks fighting over you?
Booley: No.
Hoke: It sure feels good.

Having people fight over you sure does feel good, which is why when applying for a job, you should use a shotgun and not a rifle.  When you have two or three job offers to select from, you feel like people are "fighting over you" and you have power and leverage.

And I guess the same could be said for asking for a raise.  If you go in, without doing any research or having any data to present to your employer that you are underpaid, you are using a rifle.  They can say yes or no, and you have no leverage or power in the situation.

(It goes without saying, that if you do the research and find out that other companies are paying less, then maybe it is time to just keep your mouth shut, for the time being.)

And this is where it gets sticky.   Are you willing to quit or be fired over this?   Because if you do this wrong, and come across as saying "pay me more or I quit!" they may call your bluff.   A friend of mine did this recently, telling their employer that they deserved more money.  They did some research and showed that someone in their position should get more in salary.   But they set a deadline and told their employer that unless they got the raise they felt they deserved they would quit.

Well, the deadline passed months ago, and they are still working for the same company.   And no doubt as a result of this ultimatum, their job is no longer secure.  Like I said, no one likes to be blackmailed.  And I think the employer realized that the employee didn't have many options, unless they were prepared to pull up stakes and move away - which they were not prepared to do.

Before you quit a job, think about more than just money.  Mark was "promoted" from Sutton Place store manager to a job in the corporate office.  But the hour-long commute to Bethesda every day took a toll on him and our car (which ended up getting wrecked).   The increase in salary was nearly wiped out by commuting costs.   Plus, he loved being a store manager (although it was hard work) but hated the politics and endless meetings in the corporate office.  He ended up quitting after a year.

There are other things to consider besides money - and benefits, of course.   If a new job means a horrible commute, factor that in.  If it means leaving a prestigious company for a lesser-known one (which might not look as good on your resume), factor that in.  If another company has an odious reputation as being a crappy place to work, factor that in - is it worth all the money in the world to work for a place with a tyrannical boss, horrific office politics, and back-biting and hostility?

And in that regard, sometimes a premier firm is a good place to build your resume, even if the pay isn't as good. When I left the Patent Office, I took a job with a downtown firm that had a good reputation.   I liked the work and it was the highlight of my resume.   I spent five years there, but left when the firm split in half.   I just wanted to write Patent applications without a lot of office drama.   I went to a firm in Alexandria that was not a prestigious, but paid more money - like $10,000 more. My boss at the old firm, when I told him, offered to match or exceed that salary (why didn't he offer that before?).

But he did make the point that I was leaving a "name" firm for a much smaller operation, and within a year or so, I left that firm and started my own practice.  Turns out, the new company had problems of its own.  I would have made a lot more money staying with my first firm, to be sure.  But I guess there were non-monetary considerations, and that was why I set out on my own. Money isn't everything.

You have to think about this in terms of your overall career, too.  If you have been at a company only a year or two, and quit or are fired, it isn't going to look good on your resume.  As a hiring employer, I received a resume from an applicant which had no fewer than ten jobs listed, some lasting as little as six months.  In each case, the applicant had a reason why he quit or was let go - usually that the boss was a "jerk" or that the company was "messed up".  You can imagine what would have happened if I hired them - I would not want to be short-term employer number eleven.

Bear in mind that you are not entitled to raises, or indefinite raises and that getting a raise can end up backfiring on you.  It is true that once an employee has been trained and gains experience, they are more productive and are worth more to the company.  On the other hand, that initial training may have been a loss-leader or a break-even situation for the company.

In the law business, everyone wants the associate with "two to six years experience" - no more and no less.  They want to poach an employee who has been trained already, and is instantly profitable.  But they don't want the senior associate who demands a higher salary, but doesn't have a client base of their own.  I suspect the same is true for a lot of other businesses as well.  It may be tempting to do a lateral after you've been trained, but what does that say about your loyalty as an employee?  It could come back to haunt you later on.

And when it comes to downsizing and layoffs, raises can backfire.  In many companies I worked for, senior employees, after decades of working, were making fantastic salaries, with raise after raise every year.   By the time they were in their 50's, they were making double what a younger employee would be making.  It was a no-brainer decision to lay off the expensive employee and keep the cheap one.

Of course, a lot has changed in the last decade since I started this blog.  Back then, unemployment was pretty high (not as high as in 1980, but high).  Today, it is at all-time lows, and many people are starting to ask why, if there is such a shortage of labor, companies are paying so little.  It is a better time to ask for a raise than, say, in 2011.

Getting back to Miss Daisy, Hoke also did his homework in another way - he understood his boss and how Booley would react.  He knew that Booley was a stern businessman, but had a soft touch for "his Momma" by the very fact of hiring Hoke years before.

Understanding your boss and his point of view is essential.  He may have department budgets to consider - and your raise may come out of his pocket (quite literally) or another employee's.  For a small company, the same is true.  Your raise (and that of others) might mean he makes less money, or he has to raise prices, or both.   And if the company isn't doing well, it doesn't matter whether you are "entitled" to a raise, if they can't afford it (and it may be time for you to move on, if the company is circling the drain).

It is a game, of course.  Payroll is often an employer's largest expense, and it creeps up over time.  So as a manager, you have to try to get an employee to work for the least amount of money possible - an amount that will prevent them from quitting or slacking off - but not so much that you are overpaying.  And oddly enough, overpaid employees can often be the least productive.   Sometimes people work harder when they are a little under pressure.

And it goes without saying that if no one is hiring in your industry - or if there are plenty of other applicants out there just waiting to take your job - then you have no leverage whatsoever.

The next part is tricky and requires some introspection.  How good are you, really?   Do you show up for work on-time and do a good job, or call in sick or are chronically late?   Do you have an special skills the company really needs, or could you be replaced with a website - or nothing at all?   It sounds dumb, but when companies lay people off, they often find they are just as productive, if not more so, than before, as it turns out having too many employees hampers production, due to social grooming and whatnot.

Like I said, it is a dicey proposition to ask for a raise.  If you don't have a pair of brass balls, you may have to rent some.  But before that, do the research first and figure out what others are paying for your job description. Having that in your back pocket as a plan B can help, but it doesn't pay to claim to have another job offer or threaten to quit if they don't pay you.

And this is where it gets tricky - very, very tricky.  No one wants to be blackmailed, and if you go to your boss and say, "give me a raise or I'll quit!" he will likely reply, "Don't let the door hit your ass on the way out!"   No one likes to be blackmailed, and a boss would rather let you go than have an employee who has leverage on him.

Besides, there is an adage among HR people that if you offer more money to an employee to keep them from quitting, they end up quitting in six months, anyway.  Think about it - you tell your boss you have a better job offer, and they pay you more money to get you to stay.  What does that say about your boss and your company?   That they are a bunch of deceitful bastards who won't pay you what you are worth, unless you have one foot out the door - that's what.

When you go to work for a company, you make a contract with them - they offer you a job at a certain price, and you accept it.   Raises are not guaranteed, other than an employer should, except in extraordinary circumstances, keep up with inflation and reward higher productivity.   That being said, labor is subject to the laws of supply-and-demand, and if there is a lot of supply out there, you can make few demands.

Ultimately, trying to improve your skills and get a promotion is the only way to really increase your salary by any significant amount.*  And often, that means having to move to another company, as often many companies do not promote from within.  I increased my salary not by "asking" for raises but through promotion and increasing my job skills (that 14 years of night school, again).  The incremental amounts I received in annual raises were pretty insignificant compared to that.

Good luck - but if it all blows up in your face, don't say I didn't warn you!

* Please don't take this as a suggestion to rack up private student loan debt in an attempt to get an "advanced degree" from a "for profit" university.  It is entirely possible that you may have risen to your level of incompetence and you may not be able to earn more money, ever.  If so, figure out how to live on what you are making, instead of chasing online degrees that are worth little and cost tens of thousands of dollars.

Authorize and Settle: Credit Card Processing

When your credit card is charged, your account might not be charged right away.

A reader writes that I should set up my credit card accounts to notify me when a charge is made.  I already do this - with all my accounts - both by e-mail and by text.  It is a bit of a pain in the ass to get so many e-mails (for some reason, Bank of America reminds me of my checking account balance twice a day) but I think it is better to be over-informed than under-informed.

In a recent article online, a celebrity is said to have had his "identity stolen" when in fact it was merely his credit card.  One of his employees snatched his credit card information and then charged several thousand dollars on it. What was sad was that the celebrity in question didn't notice the charges until the end of the month, and then went back through previous months' statements and noticed other fraudulent charges. And you wonder why these celebrities go bankrupt once their TeeVee series are cancelled - they are not paying attention to money.

Getting charge notifications is handy for other reasons.  For example, I am at a craft fair, and some vendor is trying to run a charge on his machine.   "I don't know if the charge went through!" he says, as his card swipe machine is on WiFi.  But the buzzing of my cell phone in my pocket says otherwise.  I look at it, and it says the charge was made.   It is handy to have this information in real-time.

But I don't think such notifications are a substitute for logging all your purchases, going online and checking your balance daily, and paying off your credit card daily.  Getting notices is fine and all, but if you don't sit down and think about what is going on, you may be overcharged.

Consider this recent event at the Greek restaurant in Jacksonville.   I charge $30 on the card and sure enough, my cell phone buzzes with a notification when the waitress scans the card. This scan, however, does not actually charge the card - it only places a hold on the card, a process known as authorization.

Authorization is used in restaurant transactions where the customer might add a tip later. By authorizing, the restaurateur knows the card is valid and the customer has sufficient funds or credit to  pay the bill.  Once the customer signs his copy - and hopefully leaves a tip - the restaurateur can then settle the transaction, which starts the process of charging the customer's credit card and eventually transferring money into the restaurateur's bank account.

By the way, these terms have specific definitions in the credit card industry, one thing I learned when I had a Merchant Account.   Having a Merchant Account allows you to charge people's credit cards, and back in the day, they were not easy to get.   You had to show all sorts of identification and banking data to show you were worthy enough to be entrusted with people's credit card information.   But since then, all that has changed.

Like I said, you can start one of these tech-that-are-not-tech companies simply by taking something illegal and making an app for it.  PayPal, one of the early online payment systems, violated the Merchant Account agreement by basically renting out their merchant account to millions of subscribers.  In the Merchant Account agreement, one of the key terms is that you can't run charges for your friend's or neighbor's businesses and then pay them back. You can't let others use your Merchant Account instead of applying for an account of their own.  If you did so, your Merchant Account privileges would be cancelled.

So along comes PayPal and violates this ToS, and the credit card companies go ballistic.  Not only are they letting one or two people piggy-back off their Merchant Account, they are letting millions.   Early on in the days of PayPal, the big card companies actually threatened to cut off PayPal, but they capitulated, as PayPal got too big, too quickly, and Visa and Mastercard realized that PayPal was generating millions upon millions in service fees for them.   Today, there are a number of such services, including Square.   Go big or go home.

And yes, PayPal did a number of sketchy things early on (such as claiming to be FDIC insured) and got away with it because they got big.   Kind of sad, ain't it?  You and I try to start a small business and we'd be hammered if we tried such things.  Such is the nature of silicon valley - you create an illegal business model and dare them to stop you.   But I digress.

By the way, I ended up closing my merchant account, as it was costing me $50 a month or more, and I was rarely using it, other than for government contracts.  I ended up accepting credit cards through PayPal, which would log the purchases as "contributions" for some reason - perhaps a way of getting around the ToS of their merchant account.   It was cheaper than their "Virtual Terminal" option, which was $30 a month.  It's so much easier just to be retired.

There are other scenarios where companies authorize first and settle second.  Hotels and car rental companies are examples, where they don't know what the final bill will be until you check out.   But they want to know you are good for the bill, and in the case of the rental car company, want a deposit on the car as well.  Such authorizations or "holds" as some call them, can decrease your available credit, or if placed on a debit card, tie up the money in your bank account.

I recounted before how a nice lady at the local Chinese restaurant ran my debit card five times for $25 of Chinese food.  "It not go through!" she says. What was happening was she was placing five authorizations for $25 apiece on my bank account.  Like many other restaurateurs, she did "batch" settlements at the end of the week, which is when the five authorizations were removed from my debit card and one settlement for $25 went through.  In the meantime, checks were bouncing as my balance was pretty precarious back then.   I learned a valuable lesson - never let your balance get that low, or if it is, you shouldn't be buying Chinese take-out.

In the Greek restaurant scenario, the charge of $30 showed up right away as an authorization (or "pending" as Bank of America calls it) and it wasn't until several days later that it shows as an actual charge of $42.   And yes, I got a notification by phone of the initial $30 charge and a notification by phone of the $42 settlement - but days apart.   Not only that, but with Bank of America, it seems their notifications are sent out nearly a day after the charge has settled.

If you are not paying attention and logging all those charges you might not notice the discrepancy.  After all, who remembers what they had for lunch several days ago, and moreover, what they paid for it?  I only remember it because I put that six dollar tip in the folder in cash.  Thus, it pays to log your transactions, daily, as you can remember what you charged and moreover, might still have the receipt in your back pocket.  If you wait days, weeks, or months, well, forgetaboutit.  There is a reason why you can't contest charges after a certain time period - the same reason we have a statute of limitations.

There are other weird things that happen with authorization and settlement. Sometimes an authorization will "stick" on your account even after the charge has settled.   For example, I bought a string of LED lights for the camper on eBay.  An authorization for $44 appears on my account and a few days later, is settled.  For some reason, the authorization remains, though.  Am I being charged twice?  I keep an eye on it for nearly a week, until the authorization evaporates.  It is possible the merchant forgot to remove the authorization until running a batch settlement at the end of the week.

In other cases, the authorizations evaporate a day before settlement. So a charge I entered in Quickbooks no longer appears on the BoA site, but the next day shows up as a settled transaction.  For one mysterious day, the charge evaporates into the ether.  A trivial thing, perhaps, but what you notice when you pay attention to these things.

So, yes, our reader is right, you need to set notifications to "on" on all of your accounts, as I have been doing for some time now.  But no, this is not a substitute for logging purchases, as it is all-too-easy to forget, days later, what you charged and why, and a bank message saying you spend $56.98 at Foodbie's All-You-Can-Eat Buffet might sound reasonable, days after the event, when in fact, it is a scam charge.

Plus - and this it the real deal here - it forces you to confront your spending habits, log your spending by category (and not the generic categories used by the bank's pie charts) and realize you are spending real money, not merely plastic.

It has made the biggest difference in my financial life and what has allowed me to get my financial house in order.

Learned Helplessness, Depression, and Changing Your Environment

You needn't spend money to improve your life.  But spending money can act as a temporary anti-depressant - and marketing types know this.

I harp a lot about mental hygiene in this blog.   Depressed people make excellent consumers.  It is all-too-easy to get "down" and then think, "screw saving, let's go spend it all now!" or at least spend part of it.  It reminds me of this old joke:

She:  "Whenever I am down in the dumps, I buy a new hat!" 

He:  "So that's where you get them!"

It is a silly vaudevillian joke, but it illustrates how some people use "shopping" as a means of fighting off depression.  And let's face it, it is exciting to buy something new, pick something out, and unwrap the package when you get home.

And with online ordering, I think this is even moreso.  You get excited about selecting the product online - the initial shopping experience.  Then, UPS sends you updates every ten minutes about how your product is being packed, shipped, and finally, "out for delivery".   In that regard, I think Amazon has the wrong idea with this same-day delivery - half the excitement is in the waiting.  And good Skinner box should make the reward more and more infrequent.   But I digress.

(I digress further:  I recently ordered a new chair mat on Amazon, as the old one was for carpeted floor, and we finally finished the wood flooring in the office.  I looked on Amazon and eBay and the best price I could find for the 46" x 60" mat from E.S. Robbins (a woman-owned company!) was $55 delivered.   I get a notice from UPS that I am getting a delivery from Costco tomorrow - what gives?  We don't belong to Costco.  I go to the Costco website and the same chair mat is $45, including free shipping.  With a couple of clicks of a mouse, a "seller" on Amazon made ten bucks.  Nice work if you can get it, and why Amazon doesn't always have the best prices, and in fact, rarely does. Lesson learned - need to check Costco next time around!)

Getting rid of old, broken, and worn-out things and getting anew is sort of fun.   Throw away that old shirt with holes in it and get a new, more stylish one!

Recently, we have been remodeling our house ("house polishing" - the second step of retirement) by replacing the worn carpeting in the bedrooms with hardwood floors - to match the rest of the house.   It is hard work, but the result look pretty good.  And by the way, a lot of this stuff isn't optional.  Carpeting has to be replaced every 10-15 years.  Houses need to be repainted (inside) about every 10-15 years.  Appliances last, well, 10-15 years.  Funny how that works, eh?   So after nearly 15 years of living in this house, a lot needs to be renewed.

And a lot needs to be thrown out, too.  In moving everything from each room to install the flooring and paint, we realize we've accumulated a lot of "stuff" over the years.  And a lot of it is just junk, or ugly, or worn out, or whatever.   So when putting each room back together, we are putting in less "stuff" and selling, donating, giving away, or throwing away the rest.   And this, like shopping, has a liberating effect on the brain, as it allows you to control and manipulate your environment - and improve it - and thus stave off learned helplessness.

One reason why hoarders are so mentally ill is that they feel overwhelmed by their possessions.  They can't bear to part with a paper clip (that needs to be sorted by size and color!) but on the other hand, they are literally buried (sometimes fatally) in stacks of junk.   Our brains are programmed with two incompatible routines at the same time.  The first tells us to save things, as that sharpened rock may be handy for skinning a hide or killing the caveman who attacks you.   The second tells us to cast off unused things, to travel light, and to have a clean and organized workspace.   Each urge of ours contradicts the other - it turns out that holding two contradictory ideas in your head at the same time is not unusual, but the norm.

In returning each bedroom to use, we are putting art back on the walls and realizing we are art hoarders.   Not that we have fancy artwork worth thousands of dollars, but a lot of prints, paintings, photos, and even framed posters and whatnot.  It is nice to have things to look at, but sometimes, it gets overwhelming and looks "busy".   So we are using this as an opportunity to cull the herd, to so speak,

And it is a good feeling.  There is nothing so nice as to have a clean, well-lighted place, or a room somewhere with a comfy chair.

In recent years, a lady has been making a lot of money on television telling people to throw things away.  She promotes the Japanese aesthetic of minimalism, which is also the aesthetic of "mid-century modern" Bauhaus architecture.   Less is more and clutter is bad for your soul.

In a way, this is practical advice, too.  If you own something and can't find it in all of your clutter, it is like not owning it at all.   If you go into your attic, basement, closet, or even a drawer and "discover" something you forgot you owned, chances are, it means you own too much "stuff".

And this isn't hard to do.   Many here on the island "downsize" by selling their home up North.  Instead of selling off all the furniture from their house, they move it down here and cram it in place.  People put bookcases and dressers in the hallway.  Cram small bedrooms with furniture to the point where you can barely walk in.   Closets get jammed with clothes that will never be worn.  Garages are full of boxes, while expensive cars sit out in the hot sun.   People bring their snow shovels with them.   I know, because I have one, given to me by a neighbor.  Why I took it, is beyond me.

It is hard to give up things, but then again, it doesn't cost you anything, and if you sell things, you can realize cash, or donate and maybe make a small deduction.   But unlike buying things, getting rid of things doesn't actually cost you money, and the net effect is the same - it staves off depression and learned helplessness by allowing you to manipulate your environment.

When you sit in a house full of "stuff" and do little more than fill it up with more stuff, you are not really improving your environment.   In fact, once the rush of buying something fades away, you end up even more depressed than before, as your house full of junk gets fuller - and your wallet a little emptier.

Second and Third Order Effects

There are many orders of effects when the government gets involved in the economy.

A reader writes:

Your recent post Why Silicon Valley Embraces Socialism is interesting. Most people, when thinking about whether or not to support government programs, don’t look beyond the first-order effects. They think as though if, for example, if low-wage workers get food stamps or some other financial government benefit, it will help the workers but nothing else will change. They don’t think of how this will change the incentives and disincentives that affect employees’ and employers’ actions, how it will distort market forces, and even how these systems, after not too long, become entrenched to the point where there would be an economic dislocation if the programs were discontinued.

The issue of whether to have work requirements for food stamps (SNAP) and Medicare is a political issue that falls along party lines. Republicans generally favor work requirements, saying they encourage people to get off welfare over time. Democrats say such requirements are cruel, and that poor people should be given these benefits with no work strings attached.

The work requirement for food stamps is set forth on the USDA website. Medicaid is still being litigated, with only one State, that I am aware of, having such a requirement. Note that the "work requirement" could be satisfied by a part-time job, going to school, job training, or being disabled or even having children under 18 at home.

What struck me about the reader's comment was the phrase "first-order effects" in that there are possibly many orders of effects of these social welfare programs.

The first order, of course, is the aid to someone in need. Someone is struggling with life and having a hard time getting by. We give them SNAP or other benefits, and this helps them out.

The second order, by dint of the work requirement, is that it forces the beneficiary to seek out a job that they might not have taken if the benefits were not at risk. If you can collect government benefits without having to work, then why work? Or more precisely, why work some crummy low-wage job that pays less (or about the same as) government benefits?

But when you put those benefits at risk, suddenly that low-wage job looks more attractive, as the "benefit" of working is equal to the sum of the wages received plus the benefits you'd receive as a result of meeting the work requirement. Suddenly, that low-wage job seems more attractive, as its net "pay" so to speak is higher, when you factor in the food stamps and medicare you now qualify for.

And of course, with Obamacare, there is an incentive to make a dollar more than the poverty line, so you can qualify for that benefit (with a 100% subsidy).

So there is second order effect, in that we are incentivising and manipulating people to work at jobs they might otherwise turn their noses up at, because we are subsidizing those wages.

And in turn, this has a third-order effect in that Walmart or McDonald's doesn't have to increase wages to attract workers, as the workers will come to them, realizing that without that part-time low-wage job, they lose the SNAP and medicare benefits.

As a corollary, when you increase the minimum wage to a "living wage" of $15 an hour, some of those same workers may be incentivized to work less hours, so they don't lose there government benefits by dint of making too much money. As noted in the link above, you have to work 30 hours a week or "or earning wages at least equal to the Federal minimum wage multiplied by 30 hours" - which means at $15 an hour, a worker could afford to scale back to almost 15 hours a week. Funny how that works! And according to some sources, local increases in minimum wage are doing just that - forcing some workers to work less or request fewer hours, so they don't lose corollary benefits by dint of making too much money.

So low-wage employers like these programs, as they effectively subsidize wages and encourage people to apply for jobs that they otherwise would not take (and give them an incentive not to quit on a moment's notice - a common problem with low-wage employees who have nothing to lose). It also means that they have a line out the door of applicants, without having to raise wages - too much.

But there are other orders of effects as well. Since SNAP can be used only to buy food, it forces these low-wage workers to use the benefit for a defined purpose. Much of the benefits handed out today are directed this way. Subsidized housing, for example, can only be used for housing. So the government ends up controlling the lives of the poor, pushing them to work, and then giving them benefits that are directed toward specific needs - housing and food, for example.

And if you think about it, it isn't that bad a system, compared to, say, this guaranteed annual income deal. Handing out cash-money to people might help some, but others would spend it on drugs and alcohol or other poor life choices. Maybe if you are in a situation where your life is so messed up you are asking the government for help, the help you should be getting is more than just cash, but guidance, instead - the fourth order effect.

Let's face it - even middle-class and upper-middle-class people struggle to handle money in this economy - which is why I started this blog. Look around you - at your friends all hopelessly in debt for a shiny car and granite countertops. We are supposed to be smart and better than that, but we aren't. An attorney for a big-name firm in Atlanta confessed to me that she was a "serial refinancer" - having refinanced their mini-mansion in Buckhead four times now. She had a nice $5000 handbag, though! Priorities.

But we don't worry as much about the middle and upper classes. As fast as they squander money, they still have some cash in their 401(k) to live on, and besides, they should know better. Harder to feel sorry for smart, rich people, when they blow it all on eye candy. But the poor, well, they can't help themselves, and are incapable of understanding the basics of economics, which is why they fall prey to so many scams and cons.

Speaking of this guaranteed annual income, one obscure Presidential candidate is promoting this idea, and people are saying he is some sort of financial guru or tech genius. Well, read his Wikipedia page - he made what little money he has (hardly more than I have, and not much less than Kamala Harris, who is technically insolvent) by running a SAT-test prep type course.

This is the guy who is the tech genius who is going to save us? Please.

Why Silicon Valley Embraces Socialism

It seems odd that tech entrepreneurs would embrace left-wing causes, but in reality, many "progressive" causes benefit big businesses more than individuals.

In my last posting, I pointed out how these "tech-that-are-not-tech" companies exploit workers in the "gig economy" by treating them as "contractors" with no base pay, benefits, sick leave, insurance, retirement plan - nothing.   They act like the corporate robber-barons of the late 1800's, in their business practices.  But in their politics, many lean leftward.

Or do they?  Is Left the new Right?

Consider food stamps and Walmart.   I have written about this before.   People on the Left decry Walmart for paying so little that their workers have to "go on foodstamps" and receive other government largess.   People on the Right decry these assistance programs entirely, claiming that the poor are sponging off society.   Both are, of course, wrong.

Government assistance to low-wage employees is not assistance to the employee but to the employer.   With all the government programs available (Section-8 housing, Obamaphone, Obamacare, SNAP, ADC, etc.) a low-wage employee can have the equivalent income of a lower-middle-class employee, as I illustrated before.   This in turn allows Walmart to pay people less, taking a huge burden off their payrolls.

When Congress talks about cutting foodstamps, the talk is usually pretty short-lived.  Not only are farmers in favor of the program, many large corporations are as well.   If they can off-load a lot of their employee costs to the government, they make more money.

In may foreign countries, this is already the case.  They have nationalized health insurance, and thus employers don't have to pay this cost.   Your contract with your employees is based on hourly wage only.  Anything else is their own responsibility - or the government's.

 And that, in part, is why we have a "work requirement" in many States for these benefits.  It is not, as Republicans claim, to encourage good-old-fashioned hard work and self-sufficiency (with the goal of getting people off assistance programs) but rather as a means of forcing people to seek out at least one part-time low-wage job in order to qualify for benefits.  The difference is subtle but distinct - few people end up working their way out of poverty as a result of these programs, work requirements or not.  But the line for job applicants at Walmart and other low-wage employers is always full as a result.

Now think about this and apply it to these socialist silicon valley robber-baron billionaires.   Why do they favor things like "guaranteed annual income" or "single payer health care" or "affordable housing" and the like?  Why would someone making billions of dollars care one iota what the guy working for him as a "gig" contractor has to go through?

And the answer is clear:  The "gig" worker who is the backbone of many of these new "tech-that-are-not-tech" company schemes is not going to stand for slave wages forever.   If the government can provide healthcare, housing, and even a little spare change, then the "gig" worker can work for long hours at low pay and not feel exploited - as much.

It turns out that these benevolent billionaires are embracing socialism because it is good business.   If the government doesn't pick up the tab for these costs, they will have to, which means their cost of labor would skyrocket, and their entire business model would collapse.

Of course, one has to ask the pointed question, why did companies in the past pay for health insurance in the first place?   Why did having a "job" mean not only being paid an hourly wage or a salary, but having a pension plan, health plan, and other "benefits" as well?

And that is a good question and could be the subject for an entirely new posting.   But long story short, back in the day - the 1950's for example - the cost of medical care was a lot less because there was a lot less medical care to be had.  You got sick, you died.  Penicillin was a new thing.   Polio was still around (and apparently back again today).  There were no life-saving operations, no transplants, heart bypass, stents, cancer treatments, and certainly no sex changes.

So it was easy back then to offer "health insurance" as it was relatively cheap, and you could do this as a way of getting striking workers back to work.   Promises of retirement pensions were cheap to make - particularly in an era where most workers died within 10 years of retirement.   But over time, these benefits crept up in complexity and cost.  Health care exploded.  People lived longer and retired earlier (often offered "early outs" by the companies - something I never fully understood)l.

That's the gist of it, which is why today we have Obamacare and the 401(k) - or the go-fuck-yourself plan.

So, maybe these benevolent billionaires have a good idea, at least in part.  Because when your health insurance is predicated on your job, you can't quit your job (or get fired) if your wife or kid has cancer (and I've seen this happen, firsthand).   And if you work for a small company or are self-employed, maybe you have no health insurance or can't afford it.   Maybe your employer shouldn't be the one in charge of your health insurance.