The economic realities of local initiatives

This year's populist agenda is reflected on Colorado's ballot

In a year of populist agendas where Trump becomes the GOP nominee and Sanders posed a serious challenge to Clinton, it’s fitting that numerous referenda and constitutional amendments are proposed for the November ballot.

Most candidates attempt to change the economic landscape. Campaign promises to stop immigration, create “fair trade” barriers, make secondary education and health care “free,” are consistent with the statewide initiatives to get on the November ballot – universal health care through Colorado Care and a minimum wage.

While it’s good for states to experiment politically and economically so innovation emerges, I am cautious about Colorado Care and the proposed minimum wage. My primary opposition comes from the lack of active debate. I’m not opposed to direct democracy if legislatures refuse to act year after year having engaged in thoughtful deliberation.

Colorado Care is a lengthy initiative to change the constitution to reduce per capita costs of health care, improve access, enhance health care experiences, and give Coloradans the right to choose their primary provider. All of this for a mere 10 percent of our incomes, which might actually work when combined with other federal sources of health care funding.

But retirees will also be paying 10 percent of their taxable income into the system, companies will pay 6.67 percent of wages, employees 3.33 percent, and the self-employed 10 percent. The cost burden will shift to retirees and small businesses, while the employed middle class will benefit.

The greatest problem is the economic contradiction found in the initiative. When demand increases, per capita costs do not necessarily decrease, unless there is excess capacity or economies of scale – neither of which are apparent in health care. Improved access by some under what will become more of a rationed system means less access and diminished care experience by others.

The “right to choose” a primary provider is different from the ability to get primary providers to accept new patients. My greatest objection is the initiative fails to require personal accountability. There is no requirement that I change my behavior to lower my cost on the system. In fact, easier access allows me to abuse the system more.

As for minimum wage, it makes sense on the surface. It especially makes sense in societies with social safety nets to prevent abject poverty. The problem with the market determining wages when there are welfare alternatives is that the market wage does not provide sufficient incentive to exit welfare. From this perspective minimum wage can create a greater benefit disparity between the working and non-working.

 Minimum wage hurts demand for inexperienced young workers, so there should be caveats for people entering the workforce. Furthermore, if minimum wages rise, the incentive for businesses to introduce more jobs killing automation grows.

 Nationwide and statewide, minimum wages have different impacts on different communities. A $12 per hour minimum wage might be great for the less skilled in Denver, but it would damage labor demand in Pueblo. The cost of living is 22 percent less in Pueblo, meaning $9.36 would be a comparable wage even though the metro areas are less than 100 miles apart.

If left to the market, some individuals and businesses will get priced out of Denver. That can stymie inflation in Denver. If minimum wage proponents are serious about aiding lower skilled workers statewide, they should propose a statute, not a constitutional amendment, which allows individual communities to match wages to their respective costs of living.

It’s one thing to have presidential candidates promising the world for free. They must contend with Congress. But to radically change the economic landscape on the whims of direct democracy is guaranteed to be filled with unintended consequences. The losers, who by definition are the minority, are bound to find alternative work-arounds.

Categories: Economy/Politics, Magazine Articles