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…. is from Thomas Sowell’s May 16, 2007 column:
If you start from a belief that the most knowledgeable person on earth does not have even one percent of the total knowledge on earth, that shoots down social engineering, economic central planning, judicial activism, and innumerable other ambitious notions favored by the political Left. If no one has even one percent of the knowledge currently available, not counting the vast amounts of knowledge yet to be discovered, the imposition from the top of the notions favored by elites convinced of their own superior knowledge and virtue is a formula for disaster.
If no one has even one percent of all the knowledge in a society, then it is crucial that the other 99 percent of knowledge — scattered in tiny and individually unimpressive amounts among the population at large — be allowed the freedom to be used in working out mutual accommodations among the people themselves. These innumerable mutual interactions are what bring the other 99 percent of knowledge into play — and generate new knowledge. That is why free markets, judicial restraint, and reliance on decisions and traditions growing out of the experiences of the many — rather than the groupthink of the elite few — are so important.
Elites are all too prone to over-estimate the importance of the fact that they average more knowledge per person than the rest of the population — and under-estimate the fact that their total knowledge is so much less than that of the rest of the population. They overestimate what can be known in advance in elite circles and under-estimate what is discovered in the process of mutual accommodations among millions of ordinary people.
Central planning, judicial activism, and the nanny state all presume vastly more knowledge than any elite have ever possessed. The ignorance of people with Ph.D.s is still ignorance, the prejudices of educated elites are still prejudices, and for those with one percent of a society’s knowledge to be dictating to those with the other 99 percent is still an absurdity.
HT: Dennis Gartman
The gradual phase-in of $15 an hour minimum wage laws as insurance policies against public relations disasters
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Seattle, San Francisco and Los Angeles have all recently passed $15 an hour
minimum wage laws government mandated price floors that guarantee reduced employment opportunities for low skilled and limited-experience workers, especially minorities. But those $15 an hour wage mandates are getting gradually phased in over time. Depending on the size and type of employer, Seattle’s $15 an hour minimum wage won’t take full effect until 2021 for all workers, Los Angeles’s $15 an hour minimum wage won’t take full effect until 2021 for all workers, and San Francisco’s $15 an hour minimum wage won’t be in full effect until July 1, 2018.
1. If minimum wage increases to $15 an hour generate net positive economic benefits (benefits that outweigh costs) for those cities as minimum wage proponents would have us believe, then why wait until 2018 (San Francisco) or 2021 (Seattle and Los Angeles) to take full advantage of those alleged positive economic benefits? Why force low-skilled workers to wait for up to six years before they can get the full benefits of the $15 an hour wage, when they could capture those benefits immediately if politicians and minimum wage advocates weren’t being so stingy and cruel?
2. Further, if a $15 an hour minimum wage generates positive net benefits for workers, why make a distinction between employers with more than 500 (25) employees and employers with fewer than 500 (25) employees, like in Seattle (Los Angeles). Employees have no control over the number of workers their employers hire, so why discriminate against workers who are employed by small businesses and make them wait up to three extra years in Seattle and one extra year in Los Angeles to gain the full benefit of a $15 an hour wage?
Bottom Line: If a $15 an hour minimum wage generates positive economic benefits for workers as proponents believe, then there would be no logical or economic reason to delay those benefits, and the $15 an hour minimum wage should be implemented immediately for all workers and for any size employer. On the other hand, only if a $15 an hour minimum wage generates net economic losses as economic theory clearly predicts, would it make sense to delay the full implementation of the price floor and have it phased in more slowly for smaller employers. In conclusion, the phase-in schedule for $15 an hour minimum wage hike, and the distinction between large and small employers, is really an implicit admission that the minimum wage generates net negative economic losses, especially for smaller employers.
As Byran Caplan so aptly observed in 2013 in his post “Phase-In: A Demagogic Theory of the Minimum Wage” (emphasis added):
A gradual phase-in is a great insurance policy against a public relations disaster. As long as the minimum wage takes years to kick in, any half-competent demagogue can find dozens of appealing scapegoats for unemployment of low-skilled workers.
Most non-economists never even consider the possibility that the minimum wage could reduce employment. But if minimum wage activists were as clueless as the typical non-economist, they wouldn’t bother with a phase-in, they’d go full speed ahead. The fact that activists’ proposals include phase-in provisions therefore suggests that for all their bluster, they know that negative effects on employment are a serious possibility. If they really cared about low-skilled workers, they’d struggle to figure out the magnitude of the effect. Instead, they cleverly make the disemployment effect of the minimum wage too gradual to detect.
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Full text of my op-ed in Thursday’s Investor Business Daily:
Despite a challenging market, the U.S. oil and gas industry is hanging tough. But our government’s inability to craft a sensible energy policy is at best handcuffing our producers and at worst threatening to reverse the gains of America’s shale revolution.
The U.S. oil rig count has dropped by more than one-half in less than a year, from slightly more than 1,600 last September to fewer than 700 in every week since early May of this year. Oil prices, driven largely by a Saudi attempt to reassert control over the oil market, have fallen to below $40 per barrel and could slip further.
And yet the shale industry has not collapsed. In fact, production has remained steady, even growing in some places. Imports of foreign petroleum products have fallen to 25.4% of our domestic supply, a 44-year low. These are not small gains.
No thanks to President Obama, we are approaching a level of energy security that lawmakers have promised but never delivered since the oil shocks of the 1970s. Signs of a manufacturing renaissance are emerging along the Gulf Coast, where low-cost oil and natural gas have become magnets for energy-intensive industries.
American households, too, are saving thousands of dollars per year on lower prices at the pump and on lower heating and electricity bills. Environmental benefits have also been noteworthy. Greater use of natural gas in place of coal for electricity generation has helped reduce U.S. carbon dioxide emissions in recent years to their lowest level in 20 years, making America the world leader in reducing carbon emissions.
Yet shale producers continue to face formidable political obstacles. The Obama administration, always happy to take credit for surging oil and natural gas production, is using the EPA and other regulatory bodies to burden energy companies with red tape and added costs.
Take the EPA’s landmark report on the safety of fracking. After years of research, the agency found what we already knew — that fracking is being done, and can continue to be done, safely. And yet what did our domestic producers get from this? New, onerous fracking rules for federal lands from the Interior Department. The EPA followed those rules by proposing unnecessary regulations on methane emissions from oil and gas production.
The Obama administration and the EPA in particular seem intent on creating problems for our domestic oil and gas industry where there is none. According to the EPA’s own data, methane emissions have fallen 38%, while production has grown by 35% since 2005. The methane “problem” simply doesn’t cry out for new, expensive regulation.
If it’s not new rules hampering our energy companies, it’s missed opportunities to turn the page on outdated legislation like the ban on crude oil exports. It’s past time to lift the crude oil export ban, an outdated relic of misguided, reactionary energy policy from the 1970s.
The export ban’s continued existence is nonsensical. It weakens our commitment to free trade, plus creates market distortions that discourage domestic oil production, reducing our impact on global supply.
Those who argue that lifting the ban on oil exports would somehow weaken U.S. energy security fail to grasp that security is enhanced more by greater domestic production, and a more transparent marketplace, than by protectionism.
Half-measures designed to poke holes in the ban — like the recently announced fuel swaps with Mexico — aren’t enough. Let’s not add more government meddling to energy trade. We need to modernize our energy policy for the 21st century to reflect America’s new status as a world energy superpower and lift the oil export ban altogether.
The shale revolution and its myriad economic, environmental and energy security benefits are fighting for their survival against the Saudis and OPEC, both of which are bent on regaining control of the oil trade. As a counterweight, we need a U.S. energy policy and a regulatory approach that encourage our oil and gas producers. Overzealous environmental regulation and inaction on the crude export ban are gifts from the Obama administration that Saudi Arabia, Russia and Venezuela don’t deserve.
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Here’s an update to my recent post about Seattle area restaurant employment “Minimum wage effect? January to June job losses for Seattle area restaurants (-1,300) largest since Great Recession.” Local area employment data by industry was released last week for the month of July, and showed a large increase in restaurant employment of 2,500 jobs during July for the Seattle MSA (seasonally adjusted), giving minimum wage proponents a lot to cheer about (see chart above). But before declaring victory for the success of Seattle’s (and San Francisco’s) pending increase to a $15 an hour minimum wage, we should consider the following:
1. The month to month changes in restaurant employment are inherently volatile and noisy, both for the not seasonally adjusted series reported by the BLS (dark blue line above) and for the seasonally adjusted series reported by the Federal Reserve (lighter blue line above). Therefore the month-to-month changes in Seattle area restaurant employment aren’t nearly as reliable for detecting underlying trends as the changes over longer periods of time.
2. For example, the chart above shows the 6-month percentage changes in Seattle area restaurant employment from January to July in each of the last 12 years back to 2004. The January to July percentage change of 1.8% in Seattle restaurant employment this year was lower than the increases over that same period last year and in 2012 (both 2.0%) and lower than the 4.3% increase in 2013. Put into the context of a longer 6-month time period, the one-month increase in July for restaurant employment in Seattle doesn’t seem quite so impressive.
3. Another way to smooth the month-to-month volatility in Seattle area restaurant employment and uncover any underlying trends is to calculate quarterly averages of the seasonally adjusted monthly data and then compare those quarterly averages to the same quarter in the previous year. The chart above displays the year-over-year changes for the quarterly averages for each month between January 2003 and July 2015. For example, the average number of Seattle MSA restaurant jobs over the last three months (May to July) of 135,000 is 3.4% above the average over the same months last year of 130,500. Similar growth rates have been calculated for each month.
An interesting pattern emerges in the chart above, which shows an acceleration of the year-over-year growth in restaurant jobs in the Seattle area following the Great Recession peaking at above 6% growth in six of the months between July 2013 and March 2014. Starting in the spring of last year, there has been a noticeable downward trend in the year-over-year growth rate of Seattle area restaurant jobs (quarterly averages), which fell below 3.6% in each of the last three months (May, June and July) for the first time since July of 2012, three years ago. Again, the one-month gain in July restaurant jobs may have created a slight up-tick for the last quarter’s average, but certainly didn’t come close to reversing the downward trend in growth rates over the last year.
4. The same analysis uncovers a very similar pattern in the year-over-year growth in San Francisco area restaurant employment, see chart above. In the most recent quarter (May to July), restaurant employment growth in the San Francisco MSA slowed to just over 4%, the lowest growth since October 2011, almost four years ago.
Bottom Line: It will take more time, probably several more years, to completely assess the employment effects of the $15 minimum wages in Seattle and San Francisco as those mandated wage hikes get phased in over the next few years. And the month-to-month job losses or gains in Seattle and San Francisco won’t tell us very much compared to looking at smoothed quarterly averages over longer periods of time like in the analysis above. But unless the time-tested, irrefutable, ironclad economic laws of supply and demand somehow don’t apply to the cities of Seattle and San Francisco, then it’s likely we’ll see some of the adverse effects of government price floors and the $15 an hour minimum wage that economic theory and empirical evidence clearly predict: reduced employment opportunities for unskilled, low-skilled, and limited-experience workers especially for minorities, adjustments from businesses and restaurants that include reducing workers’ hours, reducing workers’ fringe benefits, and raising prices. In other words, there’s no “free lunch” from a minimum hike to $15 an hour, despite what politicians (and minimum wage proponents) think. In the extreme, one only need look to the disastrous consequences of failed socialist, government policies in Venezuela (including price controls) to get some understanding of the effects of excessive government interference in the marketplace – including the effects (even if less extreme) of a $15 an hour minimum wage.
More on the minimum wage-related job losses on the West Coast, and why they might be worse than reported
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Over the last year, three West Coast cities – Los Angeles, San Francisco and Seattle – have passed $15 an hour minimum wage laws that will be in full effect by 2018 in San Francisco and Seattle and by 2020 in Los Angeles. On the way to the full $15 an hour, Seattle increased its minimum wage to $11 on April 1 and San Francisco increased its minimum wage to $12.25 on May 1. In addition, the Los Angeles city council last fall passed a targeted minimum wage of $15.37 an hour for hotel workers that just went into effect on July 1.
What effects are these minimum wage increases having? As I (and other economists) have reported here, here and here there is already preliminary evidence that the minimum wage hikes in all three cities have had negative employment effects: a loss of 1,300 restaurant jobs in the Seattle area between January and June, a loss of 2,500 restaurant jobs in the San Francisco metro area over the last year, and a loss of 2,200 hotel jobs in the Los Angeles area over the last year.
One technical issue with those documented job losses is that they are reported for the entire metro areas of Los Angeles, Seattle and San Francisco, and not just for the core cities, where the minimum wage increases went into effect. The challenge is that the Bureau of Labor Statistics only reports employment by industry for entire Metropolitan Statistical Areas (MSAs) or Metropolitan Divisions (MDs), and not for the main individual cities that those MSAs and MDs are based on. Ideally, it would be best to isolate the employment effects of minimum wage increases by looking at only the geographical area where those increases were implemented, but that analysis is not possible and we are left with a second-best option of analyzing the employment effects of entire MSAs or MDs like Los Angeles, Seattle and San Francisco. The second-best option has been criticized here and elsewhere.
However, I think a case can be made that the restaurant job losses documented for the San Francisco and Seattle MSAs and the hotel jobs losses for the Los Angeles MSA might significantly underestimate the actual number of job losses that took place in those three cities. As Stephen Bronars explained in his Forbes article yesterday (“Higher Minimum Wages in San Francisco and Seattle Mean Fewer Restaurant Jobs”):
The first wave of minimum wage increases appears to have led to the loss of over 1,100 food service jobs in the Seattle metro division and over 2,500 restaurant jobs in the San Francisco metro division. These estimates are likely to be conservative, especially in Seattle, because many jobs in the metro division are outside the city limits and not subject to the minimum wage increase.
The reason those job losses might be conservative is that they are based on the entire MSA or MD, when in fact most (or all) of the job losses were likely concentrated within the cities where the minimum wage was actually increased. In each of the three cases discussed above, the jobs in the state outside the MSA areas increased over the period examined: restaurant jobs outside the Seattle MSA increased in Washington state, restaurant jobs outside the San Francisco MSA increased in California, and hotel jobs outside the Los Angeles MSA increased throughout the state of California.
Therefore, common sense would dictate that the restaurant jobs in the suburban areas of San Francisco and Seattle, where there was no minimum wage hike, would more likely follow the pattern of employment gains that took place throughout the rest of those two states than they would follow the pattern of job losses in the core city where the minimum wage increased. Likewise, it would make sense that hotel jobs in the suburban areas of LA, where there was no minimum wage hike, would have increased along with the gain in hotel jobs throughout the rest of the state outside of the LA metro area. In that case, those job gains in the suburban areas of Seattle, San Francisco and LA might have actually offset some of the job losses within the cities, making the job losses in the city look better than what gets reported for the entire MSA.
For example, suppose there were actually a loss of 2,000 restaurant jobs in the city of Seattle between January and June due to the first minimum wage hike, accompanied by a gain of 700 restaurant jobs in the rest of the Seattle MSA where there was no change in the minimum wage. The net loss of 1,300 restaurant jobs that gets reported by the BLS (and Federal Reserve) for the Seattle MSA would actually then understate the true job loss of 2,000 for the city of Seattle by itself.
Bottom Line: Economic logic and common sense suggest that employment patterns in the outlying suburban areas of Los Angeles, Seattle and San Francisco, where there was no change in the minimum wage, would more likely track the pattern of jobs in the rest of the states of California (where hotel and restaurant jobs increased) and Washington (where restaurant jobs increased), that those areas would follow the pattern of job losses within the nearby city limits where the minimum wage increased significantly. In that case, the reported hotel jobs lost in LA, and the reported restaurant jobs lost in San Francisco and Seattle, would actually underestimate the true number of jobs lost within the cities of LA, Seattle and San Francisco due to the minimum wage hikes this year.
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Preliminary results indicate that the increases in the minimum wage this year on the West Coast have had negative employment effects in Los Angeles (for hotel workers, see this CD post) and Seattle (for restaurant workers, see this CD post). There is now additional evidence that the minimum wage increase in San Francisco this year to $12.25 an hour (on the way to $15 on July 1, 2018) is having an adverse effect on the city’s restaurant employment, as Stephen Bronars reports today in Forbes (“Higher Minimum Wages in San Francisco and Seattle Mean Fewer Restaurant Jobs“).
The table above summarizes some of the findings presented by Bronars in his Forbes article about San Francisco restaurants jobs, by looking at the year-over-year growth rates for the second quarter this year compared to previous years for several industry categories. Here’s what the data show:
1. Total restaurant employment in the San Francisco area grew by only 0.31% over the last year (Q2 2014 to Q2 2015), and fell by 1.33% for limited services restaurants. In contrast, total San Francisco restaurant employment grew by an average of 4.64% annually over the last three years (Q2 to Q2), and limited service restaurant employment grew by an average of 3.25% per year over that period.
2. In contrast to the anemic growth in San Francisco restaurant jobs over the last year of only 0.31%, overall job growth in the area grew by a healthy 5.01%, about average for the previous three years. So the slowdown in job growth for the city’s restaurant industry is definitely not part of any overall weakness in the city’s labor market.
3. In contrast to the weak growth in San Francisco restaurant employment over the last year (0.31% overall, and a 1.33% decline in limited service restaurant jobs), nationally both total restaurant jobs and limited service restaurant jobs grew by about 3.6% over the last year. So the weakness in San Francisco restaurant hiring over the last year is definitely not part of any national weakness in restaurant hiring.
In conclusion, there are some preliminary indications, supported by the employment data, that the San Francisco minimum wage hike is having the expected negative effect on the area’s restaurant jobs. Here is how Steve explains it:
Higher minimum wages will cause restaurants to economize on labor costs and hire fewer employees even in relatively wealthy cities. Competition will encourage food service companies to find less labor intensive methods of delivering prepared meals to their customers. For example, customers placing orders on computer tablets can reduce the demand for food servers.
Restaurant employment grew much less rapidly than in other sectors in San Francisco in the past year (see table above). In addition, had restaurant employment grown at the same rate as in the rest of the U.S., there would be 2,520 more restaurant jobs in the San Francisco metro division.
And here are Steve’s “Tentative Conclusions“:
While results based on preliminary and noisy data should be interpreted with caution, and more detailed studies will be required as city minimum wages increase even more, higher minimum wages appear to be disrupting the restaurant industry in San Francisco and Seattle and causing a reduction in jobs. In San Francisco minimum wages might be diverting customers to caterers and food trucks, perhaps because they are better equipped to adjust to higher labor costs. The first wave of minimum wage increases appears to have led to the loss of over 1,100 food service jobs in the Seattle metro division and over 2,500 restaurant jobs in the San Francisco metro division. These estimates are likely to be conservative, especially in Seattle, because many jobs in the metro division are outside the city limits and not subject to the minimum wage increase.
MP: As predicted by economic theory and supported by much of the empirical evidence, minimum wage increases this year in Los Angeles, Seattle and San Francisco are having their expected effect: fewer jobs for hotel workers in Los Angeles and fewer jobs for restaurant workers in Seattle and San Francisco. It’s not complicated, it’s just basic, introductory supply and demand – the ECON 101 that most politicians (and minimum wage proponents) must have missed (or slept through) in high school and college.
Bonus Minimum Wage Chart:
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Just like there are some early indications that Seattle’s minimum wage law (currently at $11 an hour as it gets phased in over the next 16 months to $15 by January 1, 2017 for many businesses) is having an adverse effect on the area’s restaurant employment (see CD post here), there are also some “Troubling Signs of Minimum Wage Damage in Los Angeles” according to a new economic report from Moody’s Analytics.
The top chart above shows the recent significant divergence for California hotel jobs outside of the LA area (dark blue line) and accommodation employment within the LA area (light blue line). Over the last 12 months through June, hotel jobs in the LA area have fallen by 2,200 (and by 5%), while hotel jobs in the rest of the state have increased by 2,400 (and by 1.4%). Reason? A year ago, the Los Angeles City Council legislated a $15.37 an hour minimum wage for hotel workers that went into effect on July 1 for hotels with 300 or more rooms, and will go into effect next July for smaller hotels. Moody’s economist Adam Ozimek explains:
The recent spate of local minimum wage hikes around the country is generating a lot of new data for economists to study, but so far I’ve been hesitant to focus on case studies. However, as I’ve been watching the data, one case is becoming too stark to ignore: Los Angeles. BLS data on the accommodations industry (NAICS 721) for Los Angeles county is starting to look like serious impacts [from the $15.37 an hour minimum wage] are occurring already.
The decline in year-to-year growth rates [for LA area hotel employment] starts to show up in October 2014, when growth falls below 2% for the first time in more than two years (see bottom chart above). Then in January 2015, [LA hotel] employment starts to actually shrink, and by June it is down 4.8% year over year. Zooming out [over a longer period going back to 1991], it’s clear that job losses of this magnitude in Los Angeles are not seen outside of recessions. Accommodation jobs have fallen by around 1,000 jobs so far this year.
Adam then adds some cautionary concerns:
[One] reason to be cautious is that the employment effects are showing up after the hike passed but before it takes effect. Businesses are forward looking so this is not impossible, but the magnitude of the declines before the wage hike takes effect are somewhat surprising especially for the service sector. Further, the hotel minimum wage hike only affects the city of Los Angeles, and these data are for the larger county of Los Angeles.
Overall, the caveats here are significant, and despite the stark and significant decline in employment, the data should be considered just very suggestive at this point. However, it does represent one more reason to be concerned about the forthcoming minimum wage hike that will be affecting all Los Angeles County workers in all industries.
While what we are seeing in Los Angeles so far is nowhere near conclusive, it should worry those who have been less concerned about big minimum wage hikes.
MP: Along with Adam, I’ll add my reservations about the restaurant job losses in the Seattle area that have been well documented (see chart above) – they are preliminary, and based on the loss of 1,300 restaurant jobs for the greater Seattle area between January and June of this year (even though only the city’s minimum wage increased to $11 an hour in April, which logically would suggest that the job losses in the Seattle area were more likely to be concentrated in the city rather than in the suburbs). And I’ll also echo Adam’s conclusion that just as economic theory would predict, there are early indications that certainly suggest some very troubling signs of minimum wage damage on the West Coast (Seattle and LA), with more trouble ahead – giving minimum wage proponents good reason to be worried.
Bonus: Two of the best minimum wage cartoons ever appear below, from Henry Payne of the Detroit News, adjusted for the $15 an hour minimum wage in Seattle.
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1. If your company’s prices are too close to the same as your competitors’ prices, government bureaucrats will come after you and charge you with price-fixing and collusion as 35 auto parts manufacturers found out recently:
To date, 35 corporations have pleaded guilty in the ongoing investigation by the U.S. Department of Justice’s Antitrust Division into alleged price fixing, bid rigging and market allocation by auto parts manufacturers.
2. If your company’s prices are too high, government bureaucrats will come after you and charge you with price-gouging, as five airlines found out recently:
The U.S. Transportation Department is investigating five of the nation’s largest airlines for potential price gouging in the aftermath of May’s deadly Amtrak crash. The department on Friday sent letters to American Airlines, Delta, JetBlue, Southwest and United asking for information about what they charged customers in the weeks after the crash, when Amtrak service in the Northeast was disrupted.
Update: As Professor Jon Schwieterman asks in his WSJ op-ed today (“An Airline Investigation That Misses the Bus“): How can airlines gouge Northeast fliers when fleets of modern buses give consumers so much choice?
Exhibit A: Megabus alone has 36 non-stop buses that travel every day between Washington, DC and New York City at an average price of only $15 each way.
3. And finally, if your company’s prices are too low, government bureaucrats will come after you and charge you with predatory pricing or selling products below cost, as the grocery chain Meijer found out recently after opening stores in Wisconsin:
Meijer’s recent opening of two Wisconsin stores has led to a state investigation to determine if the Midwest retailer violated a Depression-era law that keeps products from being sold below cost.
There are 37 products reported in four complaints filed against the Michigan-based retailer. Products reported to be priced too low range from 28-cent a pound bananas to a $1.99 gallon milk (see graphic above).
The complaints were filed with the Department of Agriculture, Trade and Consumer Protection, which is charged with enforcing the Unfair Sales Act, also known as the minimum markup law, which covers the sale of gas, tobacco and general merchandise products sold in Wisconsin.
MP: So according to the government, whether a company’s prices are “too low,” “too high,” or “too close to its competitors’ prices,” those prices could be determined to be both unfair and illegal? Oh, and I thought the government wants to help poor people, so why would it object to Meijer selling its milk and bananas to low-income shoppers at extremely low prices, even if some of those prices might be below Meijer’s cost – why make such a a generous form of corporate charity illegal?