Thursday, July 24, 2008

The Cost Is Going Up. Therefore We're Going To Use More???

When the cost of something goes up, all other things being equal, the demand for that thing goes down.
With the cost of gas going up and up, I bet you're driving around a lot less than you were 5 years ago, right?
Do you still keep your home's thermostat on 68 degrees, the way we did back in the 1970's? Or does 75 degrees make more sense, now that we have much higher energy costs?

Here's another scenario. Assume you want to take piano lessons and there are 4 possibilities in your area:
*Lessons from the best teacher in town for $50 per hour
*Lessons from a competent, experienced teacher for $40 per hour
*Lessons from an ok teacher for $30 per hour
*Lessons on piano from an untried teacher for $20 per hour

In this scenario, in a free market, you might give the rookie teacher a try for $20 per hour.
But what if the government put out a decree which stated that all piano teachers, regardless of skill level, regardless of current demand, must be paid $40 per hour? Would you still give the rookie a try, or would you go for the competent, experienced teacher?

In this scenario, is the government really helping the untried teacher by raising the floor on piano lessons? Or are they guaranteeing full employment for the most skilled and experienced piano teachers at the expense of the others? (Look up the origins of the Davis Bacon employment acts when you get a chance. These were our first minimum wage laws, and were designed to guarantee full employment for whites at the expense of blacks. They’ve worked well.)

This is exactly what is happening at the lower end of the wage pool with today's minimum wage increase. There will be another mandated increase a year from now.

A few months from now, start looking for bewildered print and online editorials about increased unemployment among teenagers and low-skilled minorities. The funniest ones will have no sense of irony, and will end with calls for our government to do something about the problem.


TarrantLibertyGuy said...

Yep. My "small government, pro business" GOP Congressman, Kenny Marchant voted for the minimum wage increase.
When my daughter is unemployed later due to these increases, she'll go to Chick-Fil-A less with her friends negatively impacting those lower paid workers...
Thanks Kenny - you're awesome!!

The Whited Sepulchre said...

You know, you really should start your own blog. You owe it to tne nation.

Back to the topic.... We may or may not have a recession soon. If we do, it's going to coincide with the largest % mandatory wage hikes we've seen. The recoveries are generally acknowledged to begin at the bottom of the wage pool. The demand for ANY kind of work is going to increase to the point that people are going to voluntarily start working for less than the minimum.
The company where I work hasn't had to raise any wages because of these mandates. The market in our industry is such that we have to pay a lot more than the minimum to get good employees. That's not the case at Taco Bell or McDonald's.
I'm so relieved that we have Reid, Pelosi, Lott & Gingrich making these decisions for us. (I know they're not all still in office - they're just the four most notable names.)

Dr Ralph said...

I've got an idea: instead of minimum wage laws, how about maximum wage laws instead?

It would be dead simple -- just say the salary of the most highly compensated employee (usually the CEO) can't exceed a value of, say, 100 times that of the lowest paid employee. Seems pretty generous to me.

Some numbers to put it in perspective: if the lowest paid employees get $7 an hour (around $14,500 a year for a full time worker), the highest paid employee's annual pay would be $1,450,000.

Big man wants a raise, little man gets one, too. If a company is doing well, it's generally not because of the efforts of one messiah-like executive.

According to the Economic Policy Institute, in 2005, the average CEO made over 800 times what the lowest paid minimum wage earner was paid. Twenty years ago the difference was 275 times. Forty years ago the difference was 50 times.

As obnoxious as the minimum wage laws may seem, they're there for a reason: to counter abusive behavior in the past. I don't have much faith in the average corporate officer not to repeat that sort of behavior without some sort of government cudgel hanging over his (or her) head.