Restaurant Closing Time

Sometimes, notwithstanding our wishes and hopes, we just can’t change or escape the basic laws of economics.  California restaurants are learning this lesson — one that so many other businesses have learned in so many other settings for so many years.

A number of California communities, including San Francisco, have decided that they should legislate substantial increases to the minimum wage, so that the minimum wage will reach $15 — a number that was picked not through the guidance of the invisible hand of supply and demand, but because it sounds goods when politicians promise it.  Basic laws of economics will tell you that if you increase the costs for a business, the business has only a few options:  either absorb the increase by cutting costs in other areas (or accepting lower profits), or increase their prices to make up for the extra costs, or recognize that you just can’t make the economics of the business work and close your doors.  In California, a number of restaurants have decided that the latter route is the only viable option.

o-restaurant-worker-facebookIn the Bay Area, at least 60 restaurants have closed since September, and as a result a number of line cooks, car valets, dishwashers, table bussers, and waiters — the people who were supposed to be helped by the $15 minimum wage initiatives, incidentally — have lost their jobs.  These results in the San Francisco area, where wages for starting workers are higher than in less affluent parts of the state, are leaving some Californians who aren’t living in economic dreamland wondering what the effects will be when a statewide minimum wage takes effect and inland areas, which already have higher unemployment numbers and where starting pay is correspondingly lower, are affected.

This restaurant closing effect shouldn’t be a surprise.  Many restaurants run on very thin margins as it is, trying to find that magic balance between quality food and reasonable prices and cool ambiance that diners are looking for.  They don’t have big profit margins that can simply absorb higher wages.  If minimum-wage legislation substantially increases their costs, most restaurants just don’t have the option of jacking up their prices because they know they are going to lose their more cost-sensitive patrons.  And there really aren’t many other areas in which restaurants can make up for increased labor costs.  Tinker with the quality of the food, or the ingredients, or the portion size, and you’ll likely end up losing your more discriminating patrons — and many restauranteurs who are passionate about food probably wouldn’t want to change how they prepare dishes, anyway.  So the logical option, unfortunately, is closing.

In short, the five-star joints, where there is less price sensitivity and where the wages may already be higher, will survive, but many of the more basic restaurants will struggle and close.  The cause-and-effect relationship is so predictable that a recent academic study found that every $1 hike in the minimum wage brings a 14 percent increase in the likelihood that a 3.5-star restaurant on Yelp! will close its doors.

The people who are advocating for large increases in the minimum wage no doubt are well-intentioned, but their efforts ultimately are misguided because you simply cannot ignore, or legislate away, the laws of economics.   How many times do we have to see this play before people start getting the plot?

Subsidies For Us All

The Wall Street Journal reports that, in certain cities, rents are so high, and “middle-class” housing is so scarce, that cities are providing assistance to middle-class families looking for affordable housing.

In New York City, Cambridge, Massachusetts, and San Francisco, among others, high constructions costs have caused developers to focus on providing more profitable, luxury accommodations for the wealthy, creating a shortage of middle-class housing that has caused rental prices to surge — and cities are responding by requiring developers to contribute to funds to build new middle-class housing, or set aside certain units for middle-class citizens, or hold lotteries to allow qualified individuals and families to obtain lower-cost, below-market-rent apartments.

shutterstock_131458289The city programs are specifically geared toward people who are middle-class — or even more so — by any measure.  The article reports that, in Cambridge, the city recently held a lottery for 15 units in which a family of four earning as much as $118,000 could qualify.  In New York City, a bank employee who earns “well over” than the NYC median income of $53,000 and who formerly lived in a “cramped, outdated” but “rent-stabilized” walk-up in Manhattan, won a housing lottery to get a brand-new apartment in Queens with a nice waterfront view of Manhattan where the rent is “roughly the same” as his former “rent-stabilized” place.  Elsewhere in the Big Apple, New York City officials agreed to contribute $225 million to preserve 4,500 housing units that will be available for families of four making as much as $142,000.

These cities, and their citizens, don’t seem to recognize they are in a spiral that is not going to stop until some form of economic rationality returns.  Why are construction costs in these particular cities so high that building housing affordable for people earning six-figure incomes — which private developers are perfectly happy to do in cities like Columbus — must be specifically subsidized or otherwise required by city officials?  What special costs, or taxes, or fees, or regulatory burdens have those cities imposed that have hampered housing construction?  And has the city done anything to make management of affordable housing once it has been built so unprofitable that there is no long-term incentive to construct such units?   The New York City bank employee, for example, formerly lived in a “rent-stabilized” apartment before luckily getting a brand new unit that costs about the same as the crappy “rent-stabilized” place.  Let’s see . . . could the existence of rent stabilization ordinances and requirements have distorted the marketplace, causing landlords to spend less on upkeep of existing housing stock and discouraging the creation of new units?

Rather than shelling out millions of tax dollars to subsidize construction, or imposing new requirements on developers that inevitably are going to have other economic impacts, the cities with a middle-class housing problem should take a fresh, ground-up look at their regulatory structure, their tax structure, their housing cost laws, and their wage regulations and get rid of the regulations that are causing the economic distortions they are experiencing.  Subsidies and set-asides obviously aren’t a solution.

There’s a bigger issue lurking here, too.  Everyone wants to help the “truly needy” get back on their feet, but when you are actively subsidizing families earning more than $100,000 you have gone beyond the point of rationality.  Our federal, state, and local governments have created so many “assistance” programs that virtually everyone receives some form of governmental benefit, whether it is in the form of a tax loophole available only to the very wealthy or special programs for housing for middle-class families.  Providing benefits to everyone obviously is not sustainable.  Is it any wonder that, at the federal level, we have built-in, assumed annual budget deficits of hundreds of billions of dollars stretching as far into the future as the eyes can see?

I’ve got a message for those middle-class folks in New York City, Cambridge, and the other towns:  move to places like Columbus, or Louisville, or San Antonio, or countless other towns where economic and governmental rationality still prevails. You’ll be able to find a nice, affordable place to live, without having to be on the subsidy rolls.

Psychedelic Scotia

IMG_4441Our hosts described Lunenberg, Nova Scotia as being like San Francisco.  They mentioned that the town is built into hillside, just like the City by the Bay.  But there is more to the similarity than steeply inclined streets.  Lunenberg has a bit of a countercultural vibe to it, like I imagine Haight Ashbury had during the Summer of Love in the ’60s, with quirky diners and stores selling what appear to be Wiccan supplies.

The psychedelic paint jobs on many of the old wooden houses in the town add to the effect.  Every block features a riotous collection of paint jobs that use every hue in the rainbow.  The different colors make the street views real treat.

When Rivalries Get Ugly

The San Francisco 49ers played the Oakland Raiders last night.  Although the two towns are separated only by the San Francisco Bay, they are fierce rivals.

Last night’s game was marked by significant violence.  Two guys were shot, and another guy was seriously beaten in a stadium bathroom.  The story on the violence also features a video of a slugfest in the stands between two big guys who probably had too much to drink and were mouthing off until things got physical.

I’ve been to Browns games where violence seemed to lurk just below the surface, and it is a scary scenario.  After all, when you go to a professional football game you are sitting with tens of thousands of strangers, many of whom have been drinking steadily as they have enjoyed the on the field violence.  It makes for a volatile situation.  It doesn’t take much to move things from taunting to brawling, and once a brawl breaks out it can spread easily.  And then, suddenly, you go from an orderly scene, where you are sitting with other fans watching a sports event, to a melee where the guy sitting next to you could decide he wants to punch you out because he doesn’t like your t-shirt or can’t figure out any other way to deal with the testosterone rush.

I’m convinced that the vast majority of sports fan fights are alcohol-related.  Sports teams could cut back on the fighting if they cut back on the beer service — but they don’t because that would cut back on the profits, too.

Sea Lions Lost, Sea Lions Found

Nature is weird.

Sea lions at Pier 39, before the exodus

Twenty years ago, hundreds of sea lions showed up at Pier 39 in the Embarcadero area of San Francisco, where they quickly became a fixture and a tourist attraction.  Millions of tourists (me included) stopped to watch them splashing around, barking, flopping onto the flat rectangular wooden docks floating at the pier, and dozing in the sunshine.  Then, suddenly, a month ago they were gone, and no one knew where they went or why they left.  All kinds of theories were offered — including one suggesting that the sea lions, using some kind of aquatic ESP, had sensed an imminent earthquake and hit the road.

It turns out that reality is a bit less sensational.  Sightings of sea lions up in Oregon have caused scientists to conclude that the sea lion colony has migrated north up the Pacific coast in search of food.   I expect that we will soon be seeing stories about how what happened to the food supply in the San Francisco Bay and whether there is another explanation for the sea lions’ unexpected departure.  In the meantime, I imagine that the tourist-dependent businesses near Pier 39 will be fervently hoping that the frolicking sea lions will quickly return.  Pier 39 just won’t be the same without them.

A Fan Of Fog

I’ve been to San Francisco quite a bit lately, and one of the things I’ve enjoyed about my visits is the fog.  Typically, it seems to be very foggy in the morning, and then as the day progresses the fog burns off and rolls back.  By afternoon, it is clear over the city, but as you look out past the Golden Gate Bridge you see the fog banks lurking out there, waiting patiently like a living thing, ready to roll back in and blanket the city once more.

We don’t have anything like this in flat, landlocked Columbus.  On the few occasions we do have fog, it usually is a few pathetic wisps that cling to the low-lying areas — nothing like the thick, plush fog banks that you see in San Francisco.

Although I imagine driving in the fog is a pain for San Francisco residents and commuters, I think the fog makes the City by the Bay a more interesting, dreamy, mysterious place.

Not San Frantic

The Ferry Buiding

The Ferry Buiding

I just got back to Columbus from a work trip to San Francisco.  I like San Francisco very much.  The summer weather is great, cool and crisp.  It is a lovely city, filled with picturesque vistas, and it has some fantastic restaurants.  One afternoon we had the opportunity to stroll along the Embarcardero, from the Ferry Building to Pier 39, where the sea lions frolic and play and bark while Alcatraz looms in the distance, across the choppy water.   It was a brisk day on the waterfront, and the mood as we took our stroll was fun and festive, with street musicians playing, the “bush guy” ready to spring out on the unwary,  and underdressed tourists shivering.  (I have to believe that one of the consistent best sellers at gift shops in San Francisco are hooded sweatshirts, brought by tourists who expect warm weather during summer and then learn their lesson when they begin their walk on the waterfront.)

The Pier 39 sea lions

The Pier 39 sea lions

The relaxed mood on the waterfront was dramatically different from the frantic mood on the front page of the local newspaper, where we were treated to constant headlines about California’s still unresolved, steadily worsening budget crisis.  One day it was the Speaker of the House saying that she was tired of the Governor’s demands, the next day it was the Governor asking for action.  In the meantime, the stories about the “IOUs” issued by California’s state governments are instructive.  One story reported that large banks are refusing to have anything to do with them, as California’s credit rating plunges.  A local news story broadcast at the airport, on the other hand, reported that some people who have received IOUs from the state government have turned to “brokers” who are paying 80 or 90 cents on the dollar, cash, in exchange for the IOUs.  One California resident explained:  “My landlord doesn’t take IOUs, so what choice do I have?”

What choice, indeed?  One only hopes that, when the next state election rolls around, voters remember the embarrassing and ineffectual efforts of their elected representatives and exercise the most fundamental choice available to our citizens — the choice to throw the bums out.