"Why Are So Many Seattle Restaurants Closing Lately?” asks a recent Seattle magazine headline. The Scrapbook is no restaurateur, let alone knowledgeable about the local economy, but we’ll guess it has something to do with the fact that Seattle’s new $15 minimum wage starts phasing in on April 1. However, the first rule of liberals confronting the laws of basic economics is deny, deny, deny.
A feature in the Seattle Times called the “Truth Needle” (we’re guessing the Times didn’t want to pony up to license PolitiFact’s logo) declares the claim that minimum wage has anything to do with the undeniably large number of restaurant closings is “false.”
Now, it’s certainly the case that restaurant operators in liberal Seattle are claiming a higher minimum wage has nothing to do with their business decisions. This is likely somewhere between a delusion and a lie, so let’s split the difference and call it public relations. Again, basic economics tells us that the typical restaurant operates on a slim profit margin, and wages typically run about 35 percent of operating costs.
Nonetheless, in very liberal and very wealthy Seattle, angering your customer base by proclaiming your opposition to redistributive social justice would be foolish. It would also be foolish to anger the local regulatory czars in a city that has proclaimed the new wage law a political triumph. “Restaurateurs are business people, not politicians, and angering the mayor over the law he signed is not a smart business move,” notes the Washington Policy Center.
However, there’s little doubt that the city’s heralded food scene is running scared. A spokesman for the Washington Restaurant Association told the Washington Policy Center, “Every [restaurant] operator I’m talking to is in panic mode, trying to figure out what the new world will look like.” We’re fairly certain it will be a Brave New Seattle, where there are fewer great restaurants, to say nothing of all the other labor-intensive businesses that will be shutting down.
Naturally, this means fewer jobs for the poor. Worse, the increased wages will also amount to a regressive tax. Economist Tyler Cowen flags a new study in the Journal of Political Economy by Stanford’s Thomas MaCurdy, concluding an increase in the “minimum wage produces a value-added tax effect on consumer prices that is more regressive than a typical state sales tax.”
The study also points to another reason why cash-strapped municipal governments like artificially raising wages. “Unlike most public income support programs, increased earnings from the minimum wage are taxable,” MaCurdy writes. “Over 25 percent of the increased earnings are collected back as income and payroll taxes. . . . Even after taxes, 27.6 percent of increased earnings go to families in the top 40 percent of the income distribution.”
So minimum wage increases grow government, make the rich richer, and still allow liberal politicians to demagogue the hell out of poor voters by falsely claiming they’re putting more money in their pockets. In the longer term, living wage laws and other en vogue liberal policies are likely to transform one of America’s best cities into Detroit on the Puget Sound. It would be nice if there were a stronger political counterweight in our overwhelmingly Democratic cities, but the best hope for conservatives regaining a foothold in urban America might be simply to stand back and let liberal economic policies work their magic.