Should You Ever Bet On A Dead Horse?
"I originally wrote this about six months ago, give or take, but never posted it. Why? Because I forgot that I wrote it. So, here it is, a little late, but still timely, even if the price of gas has fallen substantially, everything else is essentially the same."
What precedent do we have for Seattle's substantial increase in the minimum wage? Nothing very specific, but plenty of historical data about what happens when government becomes the primary driver of wage and price increases. In a free market prices are constantly changing as businesses compete for a larger share of the market. Prices are adjusted to reflect supply and demand on a day to day basis, sometimes on a minute by minute basis. Just go to the supermarket and look at the price of just about anything from milk to bananas. The availability of a product dictates market prices, as does competition. That means that all of these businesses are competing for the consumers favor—your favor.
You'd think that Americans would be flattered that so many billion dollar corporations, mom and pop businesses and upscale providers are working their butts off to get you to shop at their place. Americans, however, seem more inclined to take this extraordinary fact for granted. By comparison, talk to anybody coming from the former Soviet block countries, where centralized economies were the norm and their point of view, as well as their level of appreciation, will be completely different.
A few years back, the head of U.S. Postal service was asked why they were losing so damn much money, about 1.2 billion dollars a month. He made it clear that the post office was slow to react to necessary business changes because they had to go through congress in order to change anything, no matter how small. And congress, not surprisingly, was pretty damn busy. That's why innovation seldom ever happens by committee and bureaucratic oversight makes changes slow and cumbersome. Not so with privately owned businesses, who know full and well that “Adapt or Die” is the ongoing mantra that drives innovation. This is where leftist adherents to Darwinian science frequently abandon “Uncle Charlie” for their own version of a creationist narrative, ignoring the evidence wherever it doesn't fit. Better to attempt to manipulate reality than face being wrong. For further study on the inefficiencies of non-market driven forces in the real economic world, the history of any command economy will do.
This is where Sweden and Denmark and the usual suspects are brought up. In fact, all such economies are almost completely driven by private industry, the Netherlands and it's oil rich, privately owned industry, produces the countries wealth. Not socialist governments, who effectively produce nothing. They simply redistribute the wealth that is created by the private economy. Even then, most of these countries have reasonably free economies. To the degree that they can absorb high taxes, is the result of prosperous private enterprise and a relatively small, culturally homogenous, educated population.
The Netherlands, for instance, is about one quarter that of the state of Florida. It isn't nearly as racially and culturally diverse as the U.S.. By comparison, the U.S. has a population about fifty times greater, spread out over a very diverse landscape that produces distinct cultures whose needs are best served by the people who live there. Centralizing an economy the size of ours isn't merely a failing proposition, it's idiotic one, which brings me back to Seattle.
Seattle's particular circumstance is simply too recent an occurrence to see any long term effect, positive or otherwise. However, there are studies, treatises and books dating back centuries about how wages and prices are established in an economy. Based primarily on studying real economies—and real economic transactions in the real world. That was basis for Adam Smith's “The Wealth of Nations” and the “The Invisible Hand” or F.A. Hayek's “The Road to Serfdom” Thomas Sowell's “Basic Economics” and just about anything by Milton Friedman.
Of course, there's also Marx's “Das Capital” a favorite among academics who frequently aren't actually economists, but they're still academics, so that's something. There's also plenty of anecdotal evidence from the left like “Hey, why don't we just give everybody some money! You know what I'm saying!” If only it was that simple, it would take nothing to end poverty, just rev-up the printing presses and let er rip! “Yeah, dude...let er rip!”
There is, even in this short a time span, some anecdotal evidence beginning to turn up, giving us a glimpse into Seattle's present—and possibly, their future. There is one great predictor amidst all the rhetoric, however. One that's pretty damned accurate, it's called, wait for it “The Past.” Here's how it works.
When cash strapped mom and pop businesses are barely surviving, substantially raising their labor costs will only force some to shut their doors. They can also deal with increased costs by having fewer employees do more work, by reducing employees benefit packages and by raising prices to cover the additional costs. It will also likely mean higher unemployment, leaving more unemployed workers competing for the higher minimum wage. All of the above appears to be happening in Seattle, even if the evidence, at this point, is essentially anecdotal.
The unintended consequence will create a surplus of labor, enabling employers to cherry-pick through a growing pool of potential employees. This makes a good deal of sense if you're a business owner. The net effect will be that the least employable people; those with limited education and skills will be left without a job. Seattle's political leaders will have harmed the very people they sought to help.
Raising wages could mean that people would have more money to spend, thereby driving the economy. Unfortunately, most of the increased spending would go to pay for the rising cost of necessities; food, clothing, shelter, heating, cooling etc.. This brings us to the real problem, which is inflation. That is the true enemy that is destroying the purchasing power of the dollar. Not greedy business men clinging to every last cent in an effort extract blood from a stone, although it makes good political fodder.
Why is inflation a problem? According to the government's numbers, it's not. But all one has to do is look at the cost of gas at the pump, your monthly electric bill and rising food prices to see the truth of it.
The real reason is simple. Artificially low interest rates and easy money terms for credit cards, home loans, auto loans etc. were intended to boost spending by enticing business and consumer alike to borrow. This was meant to grow the economy—and it did—for a time. But, if your real income isn't rising to match your debt, a tipping point is reached and the debt load eventually becomes unmanageable. Where some elements of inflation are being kept in check, it's actually stagnating or declining wages that's the cause, not good fiscal policy.
Where did all this money come from? From central banks. In the U.S. It was The Federal Reserve, but, a similar phenomenon was happening throughout Europe and Asia. Japan fell into a same trap two decades ago and has never really recovered as the result. Ten separate central banks (similar to the Federal Reserve in the U.S.) had to be bailed out in 2009 and 2010 due to massive debts. Greece, Ireland, Portugal, Spain, Cypress, Latvia, Romania and Hungary are potentially the tip of the iceberg of much larger problem throughout Europe.
In other words, governments around the world were doing exactly the same thing as their citizens. They were spending substantially more than they were taking in. In fact, it was governments, operating through central banking policy, that enabled all of it. Central banks exist at the behest of federal governments, not the other way around.
Currently, the problem remains unresolved. And the only solution being offered is to print more money and keep borrowing. Unfortunately, all of this money, created, out of thin air, must be repaid. That is the law. Repaid by whom? By the people, of course, through taxation.
There is a much, much bigger problem here than raising the minimum wage. Proposing a substantial wage hike to solve America's problems would be like trying to stop a tsunami with a handful of sand.
Should we be subsidizing global corporations? No! Most people don't work for global corporations, though. Small businesses represent fifty to seventy percent of all American employers—not government, not multinationals.
Wages, inevitably go up when the demand for labor begins to exceed the supply. Simply put, if you start a business and want to hire, but are having trouble finding good workers, you'll be forced to pay more to attract potential employees. That's why having a business climate that's actually favorable to starting a business; less regulation, lower taxes and less red tape, is absolutely necessary.
Unfortunately, we are continuing down the same path that was set over the past twenty years. And, we can't change course without reaping a heavy price for all the bad fiscal policy that has been the driving engine of our economy up to this point. All we can do is pray for a miracle, hoping that some wildly inventive entrepreneurs will do the impossible and revive our failing economy. But it won't be easy, in fact, at this stage of the game it's beginning to look damn near impossible. That's why a miracle is about all that's realistically left—which isn't very realistic at all.
Mark Magula
You'd think that Americans would be flattered that so many billion dollar corporations, mom and pop businesses and upscale providers are working their butts off to get you to shop at their place. Americans, however, seem more inclined to take this extraordinary fact for granted. By comparison, talk to anybody coming from the former Soviet block countries, where centralized economies were the norm and their point of view, as well as their level of appreciation, will be completely different.
A few years back, the head of U.S. Postal service was asked why they were losing so damn much money, about 1.2 billion dollars a month. He made it clear that the post office was slow to react to necessary business changes because they had to go through congress in order to change anything, no matter how small. And congress, not surprisingly, was pretty damn busy. That's why innovation seldom ever happens by committee and bureaucratic oversight makes changes slow and cumbersome. Not so with privately owned businesses, who know full and well that “Adapt or Die” is the ongoing mantra that drives innovation. This is where leftist adherents to Darwinian science frequently abandon “Uncle Charlie” for their own version of a creationist narrative, ignoring the evidence wherever it doesn't fit. Better to attempt to manipulate reality than face being wrong. For further study on the inefficiencies of non-market driven forces in the real economic world, the history of any command economy will do.
This is where Sweden and Denmark and the usual suspects are brought up. In fact, all such economies are almost completely driven by private industry, the Netherlands and it's oil rich, privately owned industry, produces the countries wealth. Not socialist governments, who effectively produce nothing. They simply redistribute the wealth that is created by the private economy. Even then, most of these countries have reasonably free economies. To the degree that they can absorb high taxes, is the result of prosperous private enterprise and a relatively small, culturally homogenous, educated population.
The Netherlands, for instance, is about one quarter that of the state of Florida. It isn't nearly as racially and culturally diverse as the U.S.. By comparison, the U.S. has a population about fifty times greater, spread out over a very diverse landscape that produces distinct cultures whose needs are best served by the people who live there. Centralizing an economy the size of ours isn't merely a failing proposition, it's idiotic one, which brings me back to Seattle.
Seattle's particular circumstance is simply too recent an occurrence to see any long term effect, positive or otherwise. However, there are studies, treatises and books dating back centuries about how wages and prices are established in an economy. Based primarily on studying real economies—and real economic transactions in the real world. That was basis for Adam Smith's “The Wealth of Nations” and the “The Invisible Hand” or F.A. Hayek's “The Road to Serfdom” Thomas Sowell's “Basic Economics” and just about anything by Milton Friedman.
Of course, there's also Marx's “Das Capital” a favorite among academics who frequently aren't actually economists, but they're still academics, so that's something. There's also plenty of anecdotal evidence from the left like “Hey, why don't we just give everybody some money! You know what I'm saying!” If only it was that simple, it would take nothing to end poverty, just rev-up the printing presses and let er rip! “Yeah, dude...let er rip!”
There is, even in this short a time span, some anecdotal evidence beginning to turn up, giving us a glimpse into Seattle's present—and possibly, their future. There is one great predictor amidst all the rhetoric, however. One that's pretty damned accurate, it's called, wait for it “The Past.” Here's how it works.
When cash strapped mom and pop businesses are barely surviving, substantially raising their labor costs will only force some to shut their doors. They can also deal with increased costs by having fewer employees do more work, by reducing employees benefit packages and by raising prices to cover the additional costs. It will also likely mean higher unemployment, leaving more unemployed workers competing for the higher minimum wage. All of the above appears to be happening in Seattle, even if the evidence, at this point, is essentially anecdotal.
The unintended consequence will create a surplus of labor, enabling employers to cherry-pick through a growing pool of potential employees. This makes a good deal of sense if you're a business owner. The net effect will be that the least employable people; those with limited education and skills will be left without a job. Seattle's political leaders will have harmed the very people they sought to help.
Raising wages could mean that people would have more money to spend, thereby driving the economy. Unfortunately, most of the increased spending would go to pay for the rising cost of necessities; food, clothing, shelter, heating, cooling etc.. This brings us to the real problem, which is inflation. That is the true enemy that is destroying the purchasing power of the dollar. Not greedy business men clinging to every last cent in an effort extract blood from a stone, although it makes good political fodder.
Why is inflation a problem? According to the government's numbers, it's not. But all one has to do is look at the cost of gas at the pump, your monthly electric bill and rising food prices to see the truth of it.
The real reason is simple. Artificially low interest rates and easy money terms for credit cards, home loans, auto loans etc. were intended to boost spending by enticing business and consumer alike to borrow. This was meant to grow the economy—and it did—for a time. But, if your real income isn't rising to match your debt, a tipping point is reached and the debt load eventually becomes unmanageable. Where some elements of inflation are being kept in check, it's actually stagnating or declining wages that's the cause, not good fiscal policy.
Where did all this money come from? From central banks. In the U.S. It was The Federal Reserve, but, a similar phenomenon was happening throughout Europe and Asia. Japan fell into a same trap two decades ago and has never really recovered as the result. Ten separate central banks (similar to the Federal Reserve in the U.S.) had to be bailed out in 2009 and 2010 due to massive debts. Greece, Ireland, Portugal, Spain, Cypress, Latvia, Romania and Hungary are potentially the tip of the iceberg of much larger problem throughout Europe.
In other words, governments around the world were doing exactly the same thing as their citizens. They were spending substantially more than they were taking in. In fact, it was governments, operating through central banking policy, that enabled all of it. Central banks exist at the behest of federal governments, not the other way around.
Currently, the problem remains unresolved. And the only solution being offered is to print more money and keep borrowing. Unfortunately, all of this money, created, out of thin air, must be repaid. That is the law. Repaid by whom? By the people, of course, through taxation.
There is a much, much bigger problem here than raising the minimum wage. Proposing a substantial wage hike to solve America's problems would be like trying to stop a tsunami with a handful of sand.
Should we be subsidizing global corporations? No! Most people don't work for global corporations, though. Small businesses represent fifty to seventy percent of all American employers—not government, not multinationals.
Wages, inevitably go up when the demand for labor begins to exceed the supply. Simply put, if you start a business and want to hire, but are having trouble finding good workers, you'll be forced to pay more to attract potential employees. That's why having a business climate that's actually favorable to starting a business; less regulation, lower taxes and less red tape, is absolutely necessary.
Unfortunately, we are continuing down the same path that was set over the past twenty years. And, we can't change course without reaping a heavy price for all the bad fiscal policy that has been the driving engine of our economy up to this point. All we can do is pray for a miracle, hoping that some wildly inventive entrepreneurs will do the impossible and revive our failing economy. But it won't be easy, in fact, at this stage of the game it's beginning to look damn near impossible. That's why a miracle is about all that's realistically left—which isn't very realistic at all.
Mark Magula
