Minimum Wage Mentality
Updated: Oct 4, 2019
Well, the democrats are at it again with their scientifically perfected approach of convincing the lower class that they're helping them whilst simultaneously bending them over the table for a quicky (patent pending). This month the topic is your buying power and what they can do to diminish it.
Arizona Democrat's Answer: Raise Minimum Wage Again!
I know that doesn't seem intuitive. It seems on the surface as though increasing the minimum wage (and thereby people's paycheck sizes) would increase their buying power. But like the healthy adolescent who judges their reflection as overweight, this water's surface is deceptive.
Don't believe me? Yeah, I see you giving me that look normally reserved for snake oil salesmen and Republicans. Not to mention Republican salesman. After all, how is it possible for someone to have more money to spend, yet have less spending power?
So, just for fun, consider this little mental exercise; if the entire US currency consisted of 1,000 dollar bills, do you really think a McDonald's cheese burger would cost 99 cents? Of course it wouldn't. That would mean only a thousand people could eat every day. It's not sustainable.
What many miss is that those green (probably graffitied) bills in your wallet have zero intrinsic value. In other words they aren't useful for anything. They make crappy clothing. They don't burn well. You can't eat them. They aren't water proof. They don't hold in heat. It's very difficult to fashion them into mediocre weapons. Trust me, in any apocalypse the people trading material worth for smelly bills are going to be the first to die.
So if it has no actual value then why do we us it? Well, have you ever tried to make change with chickens? It gets messy. Is that cow worth twelve chickens or twelve and a half. And what if I throw in a pig? A monetized economy allows us to avoid paying for a cow with pieces of random farmyard animals. It's simpler to use. Unfortunately its also simpler for the government to meddle with. Perhaps that's why George Washington was against monetization. How ironic that the newly formed Department of the Treasury should choose to plaster his likeness upon the most prolific bills ever printed.
While I might not claim to agree with good ole George on the evils of money, it is actually just a counter for a slice of the printing country's GNP. If you don't know what GNP is do a google search. Money and buying power are about as related as Homo-Sapien and Homo-Erectus.
Your giving me that look again . . .
At time of writing we have roughly 1.2 trillion dollars in circulation. So if the government were to lose its mind (more than it often seems it has) and destroy all but a thousand dollars then each dollar's buying power would be 1.2 billion times what it is today. If, on the other hand, they were to lose their minds heading into the opposite ditch (not an unprecedented occurrence) by printing another 10.8 trillion dollars then each dollar would have the buying power of a dime.
And now that we've explored one way in which having more counters does not necessarily equal having more buying power consider this; by increasing the minimum wage we increase the costs of every business.
But hey, they're businesses right? They're swimming in the cash their holding onto Scrooge McDuck style right?
Actually most businesses try to maintain a ten percent profit margin, and most of that goes to stockholders. And now everything is more expensive. This leaves them with two options: find a way to do the same job with fewer employees, or raise their prices.
But, surely the increase in price isn't as high as the increase in buying power for minimum wage employees right?
First off, don't call me Shirley. Second your forgetting that an economy is a complex system. When I originally looked into the value of a minimum wage hike, minimum wage was $7.50 and people were complaining that they weren't making $15. Roughly 10% of the workforce was on minimum wage. Simple math would suggest that if 10% of your workforce got a 100% increase in wages that would be an increase of 10% to the price of your products right? Unfortunately this isn't including all of the workers between the two extremes. It proved impossible to define this number but we could easily assume that there were more people making more than $7.50 and less than $15 then those at $7.50. And obviously they would be seeing a smaller increase. So for simplicity's sake lets double that number creating a 20% increase in your company's bottom line. That's not too bad for a 100% increase in price right?
But we're not done yet. The government taxes businesses a whopping 50% of their income. In other words, if their costs go up 20% they have to tack on another 20% just to appease Uncle Sam's sticky fingers. But hey, that puts us at 40% and still showing a profit for those poor minimum wage workers, right?
Still not done yet. In fact, I'm sure some of you are looking at my calculations and finding them high. Sure I'm figuring the increase in payroll, but I've completely ignored materials cost. That shouldn't go up right? Wrong. Because other than base businesses (like lumber companies, mines, farms, and oil wells) every business is buying materials from other businesses who bought them from other businesses and on and on. The more processed the product the more businesses involved, each of which tacking on that 40%.
At this time I looked into the making of flour as an example. As it turns out, the bleached self raising flour you buy in the store is actually the culmination of 20 to 30 different companies. Fortunately that's not 30 businesses in a line. Its more of a tree diagram. Remember, if I have a business that buys from 12 different businesses, each increasing their price by 10%, that's still only a 10% increase to the cost of my product. So we really only have to count tiers of refinement. In the case of flour these are: mines and farms, laboratories, and processing plants. The bottom tier sees almost no increase from minimum wage hikes, initially. Mines have almost no minimum wage employees due their hazardous environment. Farms are hard work requiring more pay, or are self owned. But that still leaves two tiers that are tacking on that 40% for a grand total of 80%. For something you can make with two rocks and a handful of plant stems.
But we're still not done yet. Remember when I made that cryptic comment about economies being systems? Simply put, that means that all of the different businesses are interconnected and have effect on each other. Think of the butterfly effect. The concept, not the movie. Okay fine think about the movie.
Done with your Ashton Kutcher flashback? Good. Remember way back (two paragraphs ago) when I said bottom tier companies don't see an increase initially? They don't, but they do still buy equipment, oil, gas, repair contracts etc. And all of these just went up by at least 80%. Even if this translates into a 12.5% increase in their bottom line that means they have to increase their prices by 25% (don't forget Uncle Sam) and pass that cost up the chain. Which means that that bag of flour now costs double, meaning the wage hike helped no one. And this process keeps going, albeit at diminished returns. In other words our economy is on the rinse and repeat cycle.
Keep in mind this is a worse case scenario, but believe it or not history does back this data up. For instance according to The People History a loaf of bread in 1960 cost 22 cents. And the federal minimum wage in 1960 was 1.00 dollar. So a loaf of bread in that era cost 22% of an hours work. Contrast that to today when that wage is $7.50 and a loaf of bread costs on average of $2.50. So a loaf of bread now consumes 33% of an hour's work, a 150% increase. Ironically flour didn't see as much of an increase going from 9.8 to 51 cents per pound. All I can say is 'thank god for advancing technology'. Whereas wage hikes create inflation, improved technology actually deflates an economy. The fewer people it takes to make a product the less it costs.
And don't forget, new technology generally creates more jobs than it makes obsolete. At the height of the workhorse maybe one percent (based on the number of horses and how many a ranch can handle) of the populous were involved in their care and breeding. But today nearly 10% of the jobs in America are related to the design, production, sale, and repair of automobiles. And no one laments the loss of the file clerk brought on by computers.
I'm sure those of you who've made it this far are thinking about the Australian McDonald's correlation. (The ironic thing is that most of this post's detractors probably haven't made it this far, instead choosing to complain about walls of text as if having to read two thousand words were an excuse to not have to improve oneself.) When the push for a 15 dollar an hour minimum wage began some people noted that the burgers at a McDonald's in Australia (where the min wage was already 15/hour) cost the same as America. So obviously an increase in cost doesn't make an increase in price, these people said.
But, again, they've failed to pay attention to the system. At that time Australia taxed corporations 30% of their net. Compare that to America which taxes corporations 50% of their gross. Lets say it costs $2.25 to make these contributors to American Obesity. Most businesses try to maintain a 10% profit margin, most of which goes to stock holders. So in order to make a profit we'd have to add 23 cents to the cost for a grand total of $2.48. Now we factor in tax. In America the government wants half of the sale price. So if the restaurant needs 2.48 then they have to sell their burger for $4.96. But Australia only wants 30% of your profit. 30% of 23 cents is 7 cents making that burger cost $2.55. Why then, I wonder, were their burgers costing the same as ours? And we're not even calculating in the fact that Australians are not adverse to the use of horse meat.
No matter who you are this screws you. I was above minimum wage. Now I'm right back at it with increased costs coming my way. It's almost as if they keep raising the minimum wage just so they can complain about the people living on minimum wage. Or maybe they just do it because the only group in the country that makes out like bandits from these hikes is the government. After all, that extra 50% is pure profit. Next time, Democrats, you could at least afford me the courtesy given a three dollar hooker, and throw me a handful of napkins.