Liberal Rhetoric 101: Static Budget Predictions

In his State of the Union address, President Obama proposed raising the Federal Minimum Wage from $7.25 an hour to $9 an hour. Liberals have, of course, trumpeted the idea as raising standard of living for the poor (a concept Biblical Conservatism refuted in Compassionate Intentions (No Results Required) a few weeks back).  Today we're going to focus on another claim liberals have made: Raising minimum wage will only cost employers X, and therefore shouldn't be a financial hardship!

Setting aside the fact that this claim ignores that employers rarely do what liberals say they "should" do because liberals often ignore the realities of human nature (which is subsequently why socialism and communism don't work and capitalism does, but I digress) -- this claim also uses the fallacy-ridden practice of Static Budgeting.

Liberals will tell you, using this principle that an employer with ten minimum wage employees who average thirty hours a week will only have to pay $525 more a week and that shouldn't require much of a price increase to compensate! 

Other than the fact that this "only $525 a week" is somebody else's money (therefore making it awfully easy for that liberal to make that claim) there is a second massive hole in this claim: it ignores the chain reactions within the price increase that a business owner has to plan for in raising prices to compensate for the new wages he is required to pay.  Let's bring up a few of these unseen potential costs:

• The business may not be able to swallow the increased costs and therefore may cut their employees' hours to compensate.
•  The above cut in hours could impact the quality of service for their customers. For example, a fast food restaurant who cuts customers will necessarily move more slowly in their food preparation. That means they will not only be able to serve fewer customers in a day -- which cuts their incoming revenue -- but they may also lose customers over that, further cutting their incoming revenue.
• The business will need to raise the prices of their product. When prices go up, many customers will buy the product less frequently. That means, again, a cut to incoming revenue.
• Some of the suppliers of the materials business owners require to supply their customers needs may also pay their employees minimum wage, which means that their operating costs may go up. 

These four  examples are not the entirety of the hidden costs of raising minimum wage. Each of these four are potential costs associated above and beyond the static prediction that liberals give considering ONLY the immediate cost of raising minimum wage -- the cost in the payroll ledger.

Liberals love to budget the projected costs of anything statically. They love to ignore the reactions that may happen in a free market that are catalyzed by the initial change.  They love to ignore the predictable market reactions to any change. It doesn't work that way. Liberals love to pretend that the laws of physics that also apply to a free market doesn't apply when they raise minimum wage, taxes, etc. don't actually apply. They expect their action to not set up a chain reaction.

Except that's what always happens. Static budget predictions never come true. There are just too many other things that effect the cost of a minimum wage increase, or tax increase, or healthcare mandate that aren't taken into effect. Business owners don't just compensate for the costs that will DEFINITELY happen. They compensate for the costs that COULD happen, because failure to do so could cause their business to collapse.

Ask yourself what THAT would do to people's "standard of living?"

Liberal Rhetoric 101: Theory Over Experience

"You're just going to have to trust me on this one...I'm the one with the degree in Economics, remember?"

This was an argument I once heard from a liberal when I had the audacity to question the predicted results of a minimum wage increase. The general point of this was "I'm an expert, you aren't, so my opinions are above your questions."

This is different from true expert testimony, by the way. A true expert, when giving testimony, has to do more than establish their credentials by their vocation or degree, at least with a person who does not know enough about them to trust them at their word.

Often times, it usually focuses on education, rather than real world experience. Academics (that is college professors or researchers) tend to think their book smarts far outrank the real-world experiences of others. To give an example, having a degree in Economics often gives a person knowledge of Economic theory, but given the diversity of theories it doesn't necessarily give them understanding of what actually works in the real world (often it doesn't, actually).  A person who has actually run a business understands more than a person who studies theories.

When it comes to the effect of a minimum wage increase on both the real spending power of a minimum wage employee as well as on the employer, I can claim real-world expertise. Why is that? Because I managed a national chain restaurant for a few years and oversaw a minimum wage increase. During that time, I saw the effect on pricing of our product and discussed how it effected some of my long-term employees (especially those who were actually making above the minimum wage because they earned raises).

I told this person that the real impact of the increase would be an economic drop because business owners would have to increase prices and cut hours. Further I explained it would be a real money loss to the employee who had already earned raises over minimum wage and a zero real dollar gain to those who were making the old minimum wage.

I was told my real-world expertise doesn't matter, because they had a study from an Economist that proved the increase was positive.  The Economist quoted hadn't run a business. They just knew the theory behind the increase.

It's the same mentality that claims that Keynesian Economics works based on theory. Keynesian Economics doesn't have real-world success stories, just failures. If we were applying real-world success to our choice of economic planning we'd follow a school of economic thought like Supply Side Economics or the Austrian School of Economics, both of which have seen historical success.

Bottom line is this: Real world experience means more than theory, because it's been exercised in practice.

Economics 101: Raising Minimum Wage Doesn't Help Anyone

President Obama, in addition to his latest call for spending more money we don't have, is calling for raising the federal minimum wage to $9 an hour. This of course sounds like a great way to lift up the poor amongst us. Except...

...except raising minimum wage causes employers to cut back on employees and have less people do the same amount of work. Because, as I've said so many times,  business owners don't just bend over, grab the ankles, and take the hit. EVER. It's simply not what happens.

Historically, this is precisely what happens every time minimum wage goes up.

There is also a second factor, one that pundits who wear bow ties do not mention on the news: A lot of the products that set the pace of inflation are sold at establishments whose staff make minimum wage.  The average grocery store employee and the average gas station attendant, for example, make minimum wage. (I'm not talking about department or store managers mind you. Just the average attendant at the gas station and the guy who stocks the shelves at the store.)

Food and gas prices more than anything else set the rate of inflation, because if it costs more to staff the grocery store, guess what? That gallon of milk and box of Frosted Flakes will go up. It's guaranteed. In fact a minimum wage paycheck at $5 an hour bought the same things as a minimum wage paycheck at $6 an hour. The net effect of that wage increase was only seen on paper. Otherwise it was worth nothing.

No matter how many times liberals expect business owners to bend over and grab the ankles when they raise taxes or minimum wage or whatever, what always happens is businesses adjust the prices of their products/services in order to maintain their profit margins. It is a fact of life.  In a free market there is no way to force these business owners to stop raising prices to cover their recent cut in profit.

Not only that, but cuts in minimum wage take away from those employees at minimum wage jobs that have put in their time, worked hard, and earned raises. I've seen it from both the employee end and the management side.

When I was in high school and college I worked at a national fast food chain. I worked hard and received raises every six months like clockwork. By the time I had been there for two years, I was making nearly a dollar an hour over minimum wage. Then some politician decided it was a good idea to raise minimum wage.  Just like that, I was making the same money as the new person they just hired.

Now I can hear you Neighborhood Liberals saying "Why didn't your employer bump you up to $1 an hour over minimum wage?"  My friends, despite whether or not I deserved it (I did) and whether or not my immediate supervisors fought to get me a proportional increase (they did) they were unsuccessful because the company could not afford to give everyone who was making above minimum wage a proportional raise to accommodate. As it was, they had to raise prices just to cover the new cost of business.

Years later as a manager for the same company, some politician decided to raise minimum wage. I had employees who had worked for that particular restaurant for years. Their wage increase was about to disappear because of the new law. Oh, and just like I said above, the cost of basic products like a gallon of milk and a tube of toothpaste were about to go up as a result of this minimum wage hike, so the new minimum wage would have the same spending power as the old minimum wage.

I was able to fight for a handful of those employees to at least make A LITTLE over the minimum wage.  If memory serves me it was $.25 an hour over minimum wage, but some of these people were earning anywhere from $.50 an hour to $1 an hour over minimum wage. In reality, those people saw their wages GO DOWN in terms of what they could afford to buy. They had less buying ability than they had before, because some politician decided to raise minimum wage. In terms of real world purchasing, these hard working employees saw their wage go down.

This is the real economic impact of raising the minimum wage, friends. It's not people making more money, at least in terms of real purchasing power. It's a bigger (or the same) digit in the paycheck worth the same or less as it was before.  In the Real World economy, it doesn't amount to jack squat.