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?"