Friday, March 7, 2014

Who Wants A Federally-Mandated Minimum Wage? Only The Gullible And Their Panderers

So, our panderer-in-chief said yesterday that “it is time to give the American people a raise”. He might as well have said “It is time to make even more American people unemployed or work only part-time and give the American people a raise in inflation”. It must also be the time for the president to try to repair his sinking poll numbers.  Everybody wants to make more money, so it is a feel-good thing to say that you need a raise.  Hiking up a federal minimum wage has been a staple of the Democrats—and some Republicans, who are afraid they might not sound compassionate—for as long as I can remember. When I was a dumb kid, I remember being excited about getting close to $2.50 an hour for a job that I needed no expertise to do.  But, on the other hand, I did not like the fact that comic books were going up in price to 15 cents. As a kid I did not see that higher wages were necessarily connected to higher prices.  As I got older I noticed that, as the minimum wage rose, so did the cost of living. 

Why are there so many adults who do not get the connection between the cost of labor and the price of a product? Maybe, it is the sorry education they received from public schools, but I am not convinced that these facts are lost on the Democrats and progressive Republicans in government who climb on the progressive bus. I am sure that most of them have studied simple college math and logic enough to get a grasp on some simple truths.  But, maybe I am giving them too much credit. Even so, I am cynical enough to believe that they are educated sufficiently to know that the ignorant masses will not make the connection and they can fool them into thinking they actually care about people more than keeping political power. 
Let me revisit the” When-I- was-young” argument to further explain the logic.  I remember my father earning about $400 a week as a roofer. When I was a baby, my parents bought a home for $6,000 with a 30-year mortgage.  I can remember my parents buying a new 1961 Chevy Impala for about $2,000. I also remember our doctor making house calls. I do not remember that health insurance was as big a deal as it is today and there were not as many frivolous malpractice law suits, requiring doctors to carry expensive malpractice insurance. You could go to the hospital and have a baby for around $200. I remember that I could buy a hamburger for 12 cents. I remember gasoline in the 20 to 30 cents range where a station employee pumped the gas for you.  In my youth, sodas were 10 cents. I collected bottles and turned them in to be recycled for two cents apiece. I would collect at least 25 of them during the week so that I could buy my way into a public swimming pool on the weekend or buy the comic books that I mentioned earlier. The truth of the matter is that people made less money in the good old days, but things also cost a lot less.

So, you might say that it was a wash, when you consider both wages vs cost of living, but you must consider that our standard of living is much greater in many respects.  Air conditioning, telephone service, digital media, medical advances, transportation; in almost any area you want to focus on, our standard of living for every American is far better than it was in the not-too-distant past.  And none of it had anything to do with how high the average wage has been.  The rise of our quality of life is due to technological advancements.
Supply and demand is the overall requirement for un-artificial raises in wages.  In many ways, advances in technology kill off a lot of low-end jobs. Construction and manufacturing, for example, used to be much more labor-intensive, requiring many hands to accomplish numerous tasks. Because of advancement in technology, many of those tasks are done by robotics or machinery operated by workers who have specialized training or education.  Today’s workforce often have to meet higher standards going to a particular job or start out on a job at a lower wage to get the training needed to perform tasks which pay more once the can do the job more efficiently.  Also, technology has changed the way may people shop for their needs. Today a buyer can go online and make purchase at a moment, rather than make a trip to store or mail-order a product that they want or need.  Such technology necessarily makes the labor forces shrink.
You can also argue that, if a wage needs to be controlled, that it should not be done on a federal level. If you think that a minimum wage is needed to match the rise in the cost of living, you have to look at the cost of living in various parts of the country. I know that my cost of living changed as I have moved from city ti city and state to state. How can you think that a $10 minimum wage would mean the same to a worker in Washington DC. as it does to a worker in Burlingame, Kansas?  Can you buy a decent $60,000 home with 3-bedrooms in Washington? If anything, a minimum wage, however stupid the idea is, could only be done equitably on a state or local level. But Obama wants everything under his control, especially the stupid things.
For logic’s sake, let us imagine that a business man, John, makes widgets and he employs 100 people. John pays 10 new employees who are largely unskilled and untrained in the widget making trade a wage of $10 an hour. His 60 employees who work on the production floor and have been with him for several years and know how to do their job in an efficient more productive manner he pays $15 an hour.  John has 29 middle and upper management employees who require specialized education in business and marketing who make salaries of make, on average, $75,000 a year. John is able to earn $500,000 a year with his company, in an average year. John is in a competitive industry, so tries to keep his quality wedges as cheap as he can to make the profit margin that makes his personal industry worth it to him. Then, the government passes a law that requires him to pay a minimum of $12 an hour to his employees.

Naturally, John finds himself in a dilemma: where can he cut the expense of manufacturing his good-quality widgets so that he can still be competitive in the market place and realize the same profit margin that made being a businessman worth it? He knows that when he pays more to his entry-level employees, his other employees will also expect a raise in their wages to be uniformly fair, especially if a union is involved. If his cost for labor is increased by even 10% across the board, John will have to charge 10% more for the widgets to meet the market place. Oh, wait a minute. We forgot that John’s material suppliers are faced with same dilemma and have to raise the price of their materials, because they also were forced to pay more to their employees, so raising the selling price of the widget may be another few percentage point higher.  So, everyone in the chain of production is faced with cutting something to remain competitive in the market place. They will, in many instances, cut the number of employees, so some folks will lose their jobs, because the profit margin requires a given number of dollars devoted to labor costs. Something has to give or the price of the widget goes up.

Now let us imagine a buyer of widgets, Barak, depends on widgets for his safety and welfare. Barak has limited income from the government—I really like the sound of that, for some reason.  Barak goes to the widget store and finds that widgets have gone up in price again. Barak wonders why the greedy widget manufacturers have raised the price again. Those @#$%$^%# widget makers!    I guess Barak needs a raise in his social security to meet the higher cost of living. That is nothing pandering group of politicians cannot fix.

Now, you may think that this little exercise in logic is too simplistic, but the math always works out the same. When we take from one place in the economy it has to be filled from another place. Free markets and supply and demand take care of the appropriate wages for a given type of work. When you do not have enough people wanting to do a certain type of work and the work is necessary from the market place’s perspective, higher wages will necessarily be offered. When the wages meet the laborer’s requirement, the job will be filled.  Just look at what menial labor is earning in North Dakota with the energy boom they have experienced.  I know that I would be just happy with $400 a week and a $20,000 home mortgage, 12-cent hamburgers, 29-cent-a-gallon gasoline and all the other stuff that went with it. A minimum wage should be set at what the individual worker is prepared to do and what the market will allow. If government did not try to manage so many things in our lives we would all be better off.