Tag Archives: Economics

The “Marketplace Fairness Act”

Posted by Tim on

We’re all for fairness, right? So who could possibly be against something called the “Marketplace Fairness Act”? If I’m in favor of free markets and everybody playing by the same rules, should I be for such a bill? Unfortunately, many small businesses have bought into the notion that the new internet tax bill before the US Senate will somehow help them by “evening the playing field”; forcing online retailers to collect sales tax the same way brick and mortar stores do. I’m curious how many of those supportive of the bill have actually read it.

Online retailers are much like the catalog sellers of the past. Back in 1992, in the Supreme Court case of Quill vs North Dakota, the Supreme Court rightly found that a state cannot force out-of-state catalog businesses to collect sales taxes for them. Although the federal government has the power to “regulate” interstate commerce, the commerce clause was put in place to keep states from applying taxes and regulations on out of state businesses. The Marketplace Fairness Act does just that; requiring retailers to collect taxes for states they do not operate in, clearly violating state sovereignty.

onlineFar from evening the playing field, this bill places an enormous burden on small online retailers. The bill is aimed at internet giants like Amazon, but the majority of retailers are NOT Amazon, and can not easily absorb the costs associated with collecting taxes for 10,000 different taxing jurisdictions. The law is simply unworkable, and the costs are unimaginable for small online sellers. A woman who sells arts and crafts online should not be put out of business so that “brick and mortar” stores can compete with Amazon.

The tax is not just laid on consumers. It costs businesses a lot of money to worry about paying taxes;  hiring accountants, lawyers, etc. and going through different audits for each of the 10,000 taxing jurisdictions. Come on! The sales tax is more than a tax on consumers; it is a tax on businesses. In this case, out of state businesses – and that is called taxation without representation.

In fact, the unknown reason behind this bill is not that it will help small brick and mortar stores compete with Amazon, but that it will hurt small online retailers and help Amazon. That’s right – guess who is supporting the bill – Amazon! That is because Amazon can absorb the costs associated with the Marketplace Fairness Act, but their smaller online competitors can’t.

The bill will likely not help traditional sellers anyway. If brick and mortar stores believe that the sole reason people shop online is because of sales taxes (or the lack thereof), they need a reality check. Better selection – better prices – more convenient. Unfortunately, many small business owners favor this bill because they think it will “hurt their competition”. In reality, it doesn’t, and will help big online retailers push small online retailers out of the market. The way to win the race isn’t by slowing the other guy down; its by speeding yourself up. Passing laws to hurt the competition is called crony capitalism, folks.

Perhaps the worst thing about this bill is all the people only looking out for themselves. Regardless of who the bill “helps” or “hurts”, (because it is clear that it is anything but “fair”), first ask – does this bill help the country as a whole? Is this a good thing for business, or a bad thing? Will this help government grow, or shrink? Will people end up paying more in taxes or less, and have less disposable income or more? The point of having different taxes for different places is competition – but this system does away with that. If states want to compete with online sales, they should do away with their sales tax altogether.

There is a supposed $11 billion in sales taxes left out there uncollected because of internet sales. When this bill becomes law, as it likely will, that means that $11 billion will leave the private sector, and end up in the hands of politicians and bureaucrats, where it will be spent much less wisely than it would have been otherwise. Call it fairness, but this bill forces consumers to pay, which means less money all around. When the government takes a piece of the pie, it hurts online and traditional retailers alike.

The bill is one more way that Congress can avoid actual tax reform. By pandering to various groups, in this case the National Retail Federation, politicians make promises and try to help this guy or that guy. The right thing to do is lower taxes all around, let people keep more of their money, and lower the burden of doing business. Unlike the Marketplace Fairness Act, this would help ALL businesses, regardless of where their customers find them.

Is Online Retail Causing Unemployment?

Posted by Tim on

Brick and mortar stores are at war with internet sellers, and it is a losing battle. For over a decade, sites like eBay, Amazon, and countless others have been undercutting conventional retailers, thereby stealing customers and the resulting revenues. It is no surprise that as more and more people take their dollars online, fewer do in retail stores, and this is causing trouble. But while the negative reaction to this from brick and mortar store owners is expected, is it warranted?

onlineretailIt seems once again that some business owners are really just angry that they are being put out of business by their competitors, but this has been happening since the dawn of time. If one manufacturer manages to build the same product at a lower cost, there is no reason to be angry at customers for buying that product over a more expensive alternative. More so, there is no reason to alienate and demonize the manufacturer who makes good products at a lower price. In the end, it is the customers who benefit, because their own money is able to buy more products, thereby increasing their standard of living.

The same is true with the retail business. The reason online retailers are able to sell the same products for less is because they have devised a business model where costs are lower. Fewer employees (no checkout clerks, shelf stockers), less overhead (no retail location electricity bill, property taxes, lawn care/snow plowing). All of these things add up, and online retailers are able to buy wholesale, and not need to jack up prices to cover extra costs. A profit comes at a lower price to the customer.

The online business model also beats the brick and mortar stores by maximizing their market. While a storefront may only serve those who live in the 10 mile radius, an online retailer’s market is the entire world! Anyone who has an address can have a package shipped to them. A huge market and low costs are the keys to why online sellers are doing so well.

The fear, of course, is that because fewer people are employed by online retailers, if more and more brick and mortar stores go out of business, America will be left with thousands of unemployed workers. But let’s go back a ways in history. It was not long ago that Sears was coming out with its first catalog; offering lower prices, and all available with a check sent through the mail. The same antagonism directed towards online retailers today was directed at Sears decades ago.

This “fear of automation” has been proven wrong many times past, but keeps reappearing. It is the same fear that unions used to try to keep manufacturers from buying machinery that would cause “mass unemployment”. Of course, as machines became more and more prevalent, unemployment did NOT greatly increase and the theory was proven wrong.

But let’s follow this type of thinking to its logical end. If technology, inventions, machines, etc. cause unemployment, then all technological progress should be halted in order to create full employment, right? In fact, going back in time, it could be said that the first man who invented machinery or tools to minimize manual labor did so at the cost of employment. Did using oxen to pull plows cause unemployment in the farming industry? Did breaking weaving machines serve any noble goal for the Luddites?

It may be that as online retailers grow, brick and mortar stores close. They will not disappear altogether, but just occupy a smaller part of the market. But does this mean that all those left unemployed are just out of luck? Of course not! New jobs will open up. Just one example would be the increased demand for jobs at FedEx and UPS who need to ship all of the online purchases. Technologies develop and disappear constantly. It is the way of the world and the way of the free market.

What we don’t need is new laws popping up, attempting to “save” X-industry from extinction. This is exactly what the new “internet tax” is all about. While some say that the law would merely even the playing field, its is important to look again. Do brick and mortar stores collect sales taxes at different rates if a person is from out of state? No? Well, this is what the law requires internet sellers to do. Instead of requiring online sellers to collect taxes for the government, the ideal thing to do would be lower taxes all around. Perhaps THIS would put more cash in people’s pockets, some of which they might spend at brick and mortar stores.

Revisiting the Minimum Wage

Posted by Tim on

In case you couldn’t stomach watching this year’s State of the Union address by President Obama, let it be known that you didn’t miss much. The speech laid out some new proposals for new government programs such as nationalized pre-school, and sounded a lot like a campaign speech. Who would have guessed it? This guy has been campaigning for five years! Leading, on the other hand, is another issue entirely. In fact, near the end of the SOTU address, the President mentioned that he’ll soon be starting on his next tour to drum up public support for his new agenda.

obamaOne proposal he made has people talking once again about the minimum wage. Obama urged Congress to officially raise the federal minimum wage to $9/hour. As I’ve discussed before, the minimum wage law is really only a political tool. It does nothing to help, and much to hurt, those who work at the minimum wage. Before we get into why the law hurts the poor, perhaps we should revisit why the law exists in the first place.

The first “minimum wage” was passed during the Great Depression. Although it was touted by politicians as a way to help the poor, the real advocates behind the program were union bosses. Not just union bosses, but racist union bosses, who wished to keep blacks from undercutting their own workers. Here’s how it works -

  • An employer has a preference for white employees, but in the end will employ whoever works for the cheapest.
  • Black workers worked for the cheapest, and therefore, were hired over white union workers.
  • The minimum wage law made it illegal to hire a black worker for less than a white one.
  • Upon realizing that all workers cost the same, employers were allowed to go with their preferences, and hire white union workers.

The origins of the minimum wage law are as simple as that – unions looking to hurt their competition. But the law is always passed as if it was meant to help the poor. The problem is that wage laws are just another version of a price control. As supply and demand change, prices change accordingly. This allows the resource, whether it is wheat, housing, or labor, to be use most efficiently, and avoid shortages and surpluses – “economic equilibrium”. When supply and demand determine the price, it is referred to as the “competitive price”.

A price control sets the price either above or below the competitive price. Now, the competitive price doesn’t change; there is just a difference between the set price, and the competitive price. If the government price of a resource is set above the competitive price, this results in a surplus. If it is set below the competitive price, the result is a shortage. In the case of minimum wage laws, the price of labor is artificially raised, and therefore creates a surplus of labor. What do we call a surplus of labor? Unemployment.

The raising of the minimum wage will see an increase in unemployment. (Let’s not forget, that the real minimum wage is $0/hour.) It seems that people making these laws have little experience making budgets as well. (Congress hasn’t passed a budget in four years!) Businesses, on the other hand, need to make budgets, or they go out of business. Because wages are merely another cost to a business, they will respond accordingly in their budgets.

Let’s say a restaurant owner has a labor budget of $30/hour. With that $30 he is able to hire 4 workers, each at $7.25/hour. When the minimum wage is increased to $9/hour, and the owner is now over budget, and must make some adjustments. No longer will he employ 4 workers; instead he will employ 3, and just work them a little harder. The wages for 3 of those workers were increased, but one of those workers is out of a job.

The people who will be laid off as a result of the minimum wage laws are not people making $20/hour. The people who are laid off are people who worked for the prior minimum wage, but whose labor is not worth the new minimum wage. These are usually people with little education, little experience, and few options in the job market. The poor, the undereducated, the unexperienced – these are the people who have effectively been priced out of a job. Instead of working for a year, gaining experience and skills, and getting a raise later, they are now denied the opportunity to even acquire experience and skills.

Democrats and proponents of raising the minimum wage will speak of a “living wage” and of what people “deserve”. The problem with these kinds of phrases is that a “living wage” is different for different people. A “living wage” for me may be more than a “living wage” for someone else. Rent prices change, food prices change, gas prices change. The word “deserve” is equally deceptive. I think I deserve $100/hour – that doesn’t mean that my boss will pay me that. More than likely he’d laugh in my face if I demanded $100/hour. The market decides what people “deserve”, and this has no relation to what an arbitrary authority deems is a “living wage”.

At a time when unemployment is still high, (7.9% in January. Real unemployment is somewhere around 15%.) and at a time when our economy actually shrank last quarter, raising the minimum wage is a way to hurt the poor, and push people onto welfare, unemployment, and other government programs. There they will reside, and the gap between “rich” and “poor” will grow wider. Ever wonder why the “middle-class is disappearing”. Think big – think government.

The Road to Serfdom

Posted by Tim on

Have you seen your latest paycheck yet? Most people see a check once every two weeks, some people once a week, and some people once a month. By this time, however, most Americans (working Americans, I should say) have noticed something different about their income. Even after the “fiscal cliff” was averted, the taxes of just about everybody went up. You don’t make $450,000, or even $250,000? What? You thought that raising “taxes on the rich” didn’t mean you?

taxesThe fact is, that while many of the tax rates were extended, everybody’s payroll taxes increased. This means that the “FICA” deduction has gone up – for most people about a 50% increase. Now, that increase may only be from roughly 4% to 6%, but that can be $50 that a family needs to buy groceries or fill up their minivan’s gas tank. These aren’t taxes “on the rich”; these are taxes on the middle class – the working class. While I myself am paying higher taxes, I do take pleasure in seeing how many people are shocked that their taxes went up too.

It is a common economic fallacy that government can tax individuals or groups. Government sets different rates for different income levels, different deductions for different organizations, and various loopholes for “crony-capitalists”, just to give the impression that they can tax different people at different rates. This allows smug politicians of both parties to use tax rates as a political weapon in the ever going battle we call “class warfare”.

By promising to raise taxes on the “rich”, politicians win votes from envious constituents. By promising to lower taxes on “businesses” they invite votes (and money) from the corporate elites around the country. A flat-tax would hurt both parties because they would need to focus less on tax-rates as a means to political gains, and more on actual policy. Policy is what both parties lack, and they are dead afraid of the American people realizing it. As long as the “progressive” tax rates are in place, however, the American people will remain distracted by class warfare.

Its too bad, really, because the tax rates Americans should be paying attention to are not just their own individual rates, but the rate that the economy as a whole is paying. For instance, up until the 1930s, the federal government spent roughly 3% of GDP. Today, the Feds consume 25% of GDP. Having this giant, bloated, inefficient government certainly isn’t going to help get our economy going! Whoever that 25% comes from, it ultimately comes from YOU.

Economics is a social science, studying the economic interactions between individuals. Taxing one person will always have an effect on someone else. If a rich person is taxed at a higher rate, that means not only the he writes a bigger check to the government, but also that he doesn’t write a check to a car dealer. This is turn means that the car dealer is taxed, the car salesman is taxed, the car manufacturer is taxed, and countless other people are taxed – the people in the steel mill who produce the materials to build the car, the people who make the tires for the new car, and on and on.

Therefore, even if only one person is taxed directly, everyone is taxed in the end. The point is not to look at who writes the check to the government, but who pays for it. Because wealth is very liquid, there are plenty of ways for the rich to avoid paying taxes – they can send their money to a Swiss bank account, for instance. In the meantime, however, plenty of people will be hurt because that money is in Switzerland, not America. These are the people that pay the taxes in the end.

Maybe it is all worth it, though. The government has bills to pay, and someone needs to pay up. Let it be YOU, the American people. Let’s be honest – you voted for it. You voted for Medicare, for Medicaid, for Social Security, and for Obamacare. These massive entitlement programs will wreck the American economy by saddling us with more debt than is imaginable. The unfunded liabilities of these programs (not even including Obamacare) run up to $86.8 trillion. That’s right – $86.8 trillion. Try to think of how much that is… try.

hayekContinuous trillion dollar deficits will bankrupt America, continuous class warfare spewed from mouths of the political elite will distract enough of us in the meantime, and all the while our President is seizing power not given to him in the Constitution; threatening to use executive power to raise the debt ceiling, as well as sidestep the 2nd amendment. Does anyone realize that these are not the actions of a President, but rather of a dictator?

Nah, Democratic California Representitive Jackie Speier says, “I urged him to do as much by executive order as possible. Frankly, I don’t have a lot of confidence that this Congress is going to do anything significant.” Right, so since that whole “separation of powers” thing really gets in the way of “progress”, let’s just forget about it and hand over more power to a single authority. This reminds me of one of my favorite excerpts from F.A. Hayek’s Road to Serfdom:

Yet agreement that planning is necessary, together with the inability of democratic assemblies to produce a plan, will evoke stronger and stronger demands that the government or some single individual should be given powers to act on their own responsibility. The belief is becoming more and more widespread that, if things are to get done, the responsible authorities must be freed from the fetters of democratic procedure.

People are getting tired of the stalemate in Washington, and they are beginning to believe that “if things are to get done” (ie: gun control, raising the debt ceiling, immigration reform, etc) then the authorities (Obama) should be “freed from the fetters of democratic procedure” (ie: the legislative process). It is happening right before our eyes. We are on the road to serfdom.

Skin in the Game

Posted by Tim on

dairyThere’s a common misconception that somehow if the free market is left alone there will be monopolies popping up left and right. Therefore, it is the government’s job to “fix” this by using the “Anti-Trust” laws to break up these monopolies. It may come as a surprise to some, but really, it is the government who enables most monopolies to exist in the first place. By creating an environment that is unfriendly to start-ups and small businesses, government puts big corporations at an advantage.

Big businesses have the resources available to fight lawsuits, to get into politicians’ pockets and get a special “loophole” in various laws, and to avoid paying taxes. Small businesses don’t have these advantages. In fact, many small businesses don’t even file their taxes as corporations, but rather as individuals; in tern paying the regular income tax that the rest of us pay. Monopolies exist rarely, and when they do exist, it is often because the market has been twisted and manipulated by government.

The government uses these various anti-trust lawsuits to play god with the market, pick winners and losers, and try to decide what is “fair”. In 2011, the Department of Justice filed a lawsuit against Dean Foods, claiming that the dairy company owned “too much of the market” in a particular geographical area. So Attorney General Eric Holder, along with Wisconsin Attorney General JB van Hollen, ordered Dean Foods to sell off one of its subsidiaries – Golden Guernsey Dairy.

Unfortunately, the only buyer of Golden Guernsey was a Los Angeles company that closed the dairy over the weekend, laying off over 100 men and women. Was there an actual complaint against Dean foods? Did Dean foods have a monopoly on the milk market?

“The proposed settlements restore competition so that school children and consumers in Illinois, Wisconsin and Michigan, will pay lower prices for their milk,” said Christine Varney, Assistant Attorney General in charge of the Department of Justice’s Antitrust Division.  “The divestiture of a significant milk processing plant and the provision that requires Dean to notify the department of future milk plant acquisitions will ensure that competition remains in this important industry.”

Right now, however, schools are scrambling to find out who can provide them with the milk for their lunch programs. Instead of having enough milk, the schools are faced with a shortage, which will in turn lead to higher prices, not lower prices. This is basic economics. Perhaps Christine Varney could learn a thing or two from Economics in One Lesson by Henry Hazlitt.

“… There is a second main factor that spawns new economic fallacies every day. This is the persistent tendency of men to see only the immediate effects of a given policy, or its effects only on a special group, and to neglect to inquire what the long-run effects of that policy will be not only on that special group but on all groups. It is the fallacy of overlooking secondary consequences.”

Christine Varney - Government hack

Christine Varney – Government hack

It always astonishes me how little economic understanding people in government have, especially when their job title is “screwer of the market”. But really, lets remember why these people have the jobs they have, and what their incentives and constraints are. There is no reason to believe that Christine Varney, Eric Holder, or JB van Hollen have any interest in keeping businesses happy. Profits to a business are its lifeblood. But government doesn’t turn a profit, it just does things and never has to pay the consequences.

Government officials, especially unelected bureaucrats, do not have to live with the effects of their actions. The people who feel the pain are the workers who are laid off. When was the last time the Department of Justice laid off any employees? Hell, when was the last time any federal agency laid off any employees? Instead, the government kills jobs in the private sector, and then demands that the private sector kick up more money to fund the further growth of government. It is foolishness to assume that the government acts in “the people’s interest”, especially when the people making the rules were never elected by the people in the first place.

A small number of people will notice this dairy going out of business, but these kinds of events happen all over the country constantly. I’ll give the government the benefit of the doubt (I really don’t) and assume that they are trying to do what is right; but they pay no price for being wrong. When Barack Obama calls for people to have some “skin in the game” perhaps he should look at the various government agencies who answer to no one, and force the rest of us to deal with the fallout from bad policy. Does government have any “skin in the game”? I think not.

Effects, Side Effects, and Unknown Causes

Posted by Tim on

causation-and-correlationA lot has been said lately about whether or not various “gun control” laws have any real effect on murders, shootings, or crime in general. Most libertarians believe that laws to ban anything or control anything always result in side effects, and rarely ever achieve their desired outcome. But statistics can always be put together to show “evidence” of one thing or another. Most recently, the claim that crime dropped during a 1994-2004 assault weapons ban has come out. Of course, this fails to take into account that crime was falling before the ban ever took effect, and continued after it expired.

So, if the gun ban wasn’t the real reason behind the lower crime rate, what could have been? The book “Freakonomics“ by Steven D Levitt and Stephen J Dubner offers some never thought about reasons. According to the book, abortion being legalized 20 years earlier meant that fewer poor children were out committing crimes in the 90s. Its a little messed up to think of it this way – but abortion killed criminals before they were even born.

Either that, or the rise of video games may have had an effect, though not the one you may think of. Violent video games are often linked with violent young people, but the 90s were a time of crime rates going down, while violence in video games went up. Actually, the link between growing video game popularity and crime may come from more young people sitting inside playing the games instead of being on the streets getting into trouble. At a time when N64 and Sega were strangling children with their “addictive” games, it meant that those kids were at home with their friends and parents, not on the corner with some gang members.

Maybe the rise in patriotism and militarism was responsible. After the Vietnam war, many Americans felt that our military was weakened, and could no longer get the job done. It was only after the great success of the Gulf War (1990-1991), largely to the credit of General Norman Schwarzkopf (RIP), that Americans began to feel a pride in their military again. Somehow, maybe guns weren’t toys anymore, and death and war became more serious. Could the respect for government and America’s armed forces have had an effect?

Or maybe the lower crime rates are just the result of an aging population. The baby-boomers made a lot of noise in the 60s; riots, protests, even terrorist actions (like Obama’s buddy, Bill Ayers). But by the 90s most of these people had settled down. Either that or they were in prison. Whatever the case, they weren’t out causing trouble the way they were “back in the day”. Sure, new criminals were coming up behind them, but not in the same numbers.

The size of the family unit changed drastically as well. In 1980 the average family unit size was 3.0, but by 2006 it was 2.6. Families have been getting smaller, meaning parents have more time to spend one-on-one with their children, possibly teaching them better values, which in tern leads them away from crime. The smaller families mean less rebelling, more money per child, and probably smaller class sizes as well. (Because we all know that smaller class sizes mean better education, right?)

chart-showing-the-decline-in-violent-crime-offenses-and-increases-in-video-game-sales-from-1996-2004-pictureJust for arguments sake, let’s say that half of people are criminals. That half of criminals played violent video games. And half of those criminals grew up in single parent homes. And half of those criminals are alcoholics. And half of those criminals live in poverty. And half of those criminals watched action movies. And half of those criminals had a chemical imbalance in their brains. And half of those criminals had a hang-nail at the time they committed a crime. What is the conclusion we then come to? We should have government provided hang-nail removal stations in every city in America. Hang nail removal is a right! No one should be forced to suffer from a hang-nail due to their inability to pay!

If we broke things down this way, we’d end up with a very small group of people who are actually affected by these issues. In the end, we judge people as individuals because everyone’s circumstances are unique. There are patterns, sure, but it makes more sense to deal with the individuals than to deal with the video games, guns, or whatever other scapegoat politicians give up to the public. There are always causes that we see, but there are more causes (and possibly more influential causes) that we never see. This is why it is foolish to pass giant blanket laws under the guise of “fixing” some problem with society.

The problem is not with society, or with guns, video games, TV violence, or “the media”. The problem is with humans. We are inherently flawed. We are born sinful. Life is not utopia, and it never can be. Life is struggle. Whatever laws they try to pass to make us feel more secure, ultimately are a limit on our liberty. And I, for one, do not wish to trade my liberty for security, not matter what effect it may have.

The Real Cliff

Posted by Tim on

I know I’m doing myself a tremendous disservice by watching all the Sunday morning cable news programs. Show after show, guest after guest, all avoiding the real issues, the real problems, with the so-called “fiscal cliff”. The cliff everyone is talking about comes in January, but it isn’t the real cliff. The real cliff will hit America regardless of what deal (if any) Republicans and Democrats come to over the next month. This real cliff is the debt crisis that will come once other nations realize that the “full faith and credit” of the American government means nothing.

There were some talks about this issue during the election months, but not a lot. One of the only candidates who actually grasped the seriousness of the debt problem was Ron Paul, but he never really had a chance to win the Republican nomination. He was also the only person to mention the Federal Reserve as the root problem of many of America’s economic woes. Had Mitt Romney been elected, I don’t know how much would have actually been done about the real cliff.

ragingbullAt Six Flags Great America there is a roller coaster called the “Raging Bull”. Anyone who has had the pleasure of riding it will remember that at the top of the ride, right before the first big drop, there is a small drop. It kind of tricks people into thinking “here we go!” and then *wait* “Oh shit! HERE we go!”. This is what we’re dealing with in Washington. The “fiscal cliff” is the small drop, and the real cliff is the huge one awaiting.

There are now calls from the White House to seize more power from Congress. Bronco Bama wants the power to raise the debt ceiling without approval of Congress. Only if 2/3 of Congress disapproved of a raise in the debt ceiling could it be stopped, and even then, the President could just veto it. This would give the President virtually all the power to spend infinite amounts of money. Where are the checks and balances? They are gone, and that is exactly what he wants. The democratic process, the separation of powers, and that stubborn old Constitution-thing are real hurdles to all the magnificent ideas swarming around in Barry’s head.

Tim Geithner, Secretary of the US Treasury, recently brought Bama’s tax/spend plan to John Boehner, Speaker of the House of Representatives. The plan included about twice as many tax increases as originally talked about, moving the top tax rate from 35% to almost 40%, and included NO spending cuts. The President is not serious about cutting spending. He isn’t serious about reform. He isn’t serious about avoiding the fiscal cliff, and he certainly isn’t serious about avoiding the real cliff. The lack of leadership coming from the White House is astonishing.

Raising tax rates to 100% on people earning more than $250,000 would not be enough to close the deficit. When politicians (and the drone-like Democrat voting block) say that all we need to do is “tax the rich” it just simply isn’t true. Raising taxes 1, 2, or 5% won’t do anything. Even raising rates to 100% wouldn’t solve the problem. The debate is between “revenue” and spending cuts. It is important to realize that JFK, Reagan, Bush, (and even Clinton, after the tax cuts of 1997) created MORE REVENUE BY CUTTING RATES. If the issue is revenue, CUT TAXES!

But the issue isn’t revenue. Bama cares nothing about closing the gap between what he spends and what he takes in. In each of his four years in office the federal government has racked up over $1 trillion deficits. He plans on doing the same in each of the next four years. If he was serious about changing the path of the US debt, he wouldn’t be calling for “taxing the rich”; he would be calling for lowering tax rates across the board, and for significantly cutting the spending of the federal government .

timobamaEveryone has their pet issues. Some people really care a lot about gay marriage, abortion rights, or immigration. For me, I love the issue of gun control and the 2nd amendment. But all these issues are secondary when it comes to the real problem that is facing the country. “Universal healthcare” doesn’t mean a damn thing if America goes bankrupt. Illegal immigration won’t matter when there aren’t any jobs in America, and when government handouts can’t be funded anymore. Medicare and Social Security won’t exist if the dollar is worth a penny due to massive government spending.

Unless Americans wake up and demand that their leaders actually DO something about these problems, then we will hurdle off the real cliff soon enough. Peter Schiff predicts it will happen in the next four years. Thomas Sowell says there is no way out at this point. Can America survive another 4 years, and if so, does anyone in Washington have the balls to actually solve these huge problems? The future doesn’t look great.

Wal-Mart and the Minimum Wage

Posted by Tim on

It is apparent that unions know that their popularity, influence, and power is dwindling. So to gain some new members, unions attempted to rally Wal-Mart workers and shut down stores around the country. Did it work? No. But, it brought up a few topics that certainly need some going over, since they will most likely be in the news.

The first complaint can be brushed under the rug right away – Wal-Mart doesn’t pay its employees well… okay. Then don’t work at Wal-Mart! The reason Wal-Mart doesn’t pay exorbitant amounts of money for someone to stock shelves is because the labor is low-skill. This employee can easily be replaced by a million other people. Wal-Mart is simply paying the market value for a product (yes, labor is a product) that is in abundance. This is the same reason that kids who flip burgers don’t get paid well – because anyone can flip burgers. Supply of low-skill labor is high, so the price will be low.

But now people are taking advantage of the scandal and proposing that it is not Wal-Mart’s fault, but something needs to be done. Everyone “deserves” a “living wage”, and therefore, the minimum wage should be raised. Just read a bit of an article written by Marcus Edgerson, leader of Organization United for Respect at Wal-Mart (“OUR Wal-Mart”).

On election day, my vote will go to the politicians leading the fight to raise the minimum wage. I support legislation introduced in the House and Senate to raise the minimum wage to $10 an hour…

…Raising the minimum wage is the best opportunity we have to get our economy back on track. Will you stand with me in restoring the American Dream for minimum wage workers like me?

$10 an hour, ey? Because Wal-Mart can “afford” to pay more, it should, because Marcus just can’t pay his bills on $7.70 an hour. Maybe Marcus should find a new job, or work a little hard and earn a raise the old fashioned way. Instead of demanding that an employer pay more, how about working harder, showing initiative, and then asking for a raise. If you don’t get it, then find a new job. I’m sure if Marcus is actually worth $10 an hour, he’ll get it somewhere.

Marcus must have failed basic economics, because getting the economy “back on track” has nothing to do with minimum wage laws. In fact, new laws like this would only hurt the economy and throw millions more people onto the unemployment rolls. Payroll is nothing more than a cost to a business, and increasing those costs is not a good idea in a struggling economy. Employers will do what they have to do to stay open, and that could mean laying off many minimum wage workers. Whenever the minimum wage is increased, unemployment numbers rise.

Even if Wal-Mart could “afford” to give everyone a raise, that doesn’t mean that every business in America can afford it. In fact, many businesses that are paying minimum wage are barely staying open. Raising the wage from $7 to $10 an hour could put these people out of business. Is $0 an hour better than $7? Marcus assumes that a raise in the minimum wage would automatically mean that every person gets a raise, but it would actually mean that many people get laid off. This is no way to “stimulate” an economy.

But this goes along with all of human nature. Marcus doesn’t want to think that maybe it is his fault that he makes minimum wage. Many people start at minimum wage, but soon they earn a raise and work their way up the ladder. If Marcus has been getting the minimum for so long, it is his fault. He probably sucks at doing his job, and that is why he doesn’t get paid more.

Low skill department store work pays on average between $8-9 an hour. If someone at these stores wants a better paying job, Lowes and Home Depot pay on average between $12-14 an hour. Want more money – work somewhere else. It is as simple as that. Price controls do not have a good effect on anything. Minimum wage laws artificially raise the price of labor above market value and this will result in a surplus of labor. A surplus of labor means more people without jobs.

We Hit the Ceiling… Again

Posted by Tim on

History repeats itself. Sometimes it repeats itself in a year. Ben Bernanke, the oh-so-wise Chairman of America’s central bank, the Federal Reserve, is once again calling for politicians to raise the debt ceiling. If we don’t go further in debt, we’ll have to make spending cuts, and this will “hurt the economy”. But wait a minute… let’s connect a few dots here.

Away from Benny B, the politicians in Washington are arguing over raising taxes and cutting spending, hoping to solve the massive deficit problem we have. El Presidente’ Bronco Bama claims that in order to “close the gap” there must be revenue increases – political speak for tax raises. The taxes are never to be levied on the “middle class”, of course, so all the revenue must be generated from taxing the “rich”. So taxing the rich will solve the problem and close the gap, right?

Well, according to the money-man, Bernanke, even with the tax increases, we are still going to hit the debt ceiling and default. If we are still going to default, then obviously there is a problem. Bernanke is already predicting that “taxing the rich” will NOT be enough to actually solve the problem. Thank you, Mr Chairman – you have successfully undercut the President of the United States.

And what happens if Congress doesn’t reach a deal and avoid the spending cuts and tax spikes in Janurary? According to Bernanke, “If the economy goes off the broad fiscal cliff, I don’t think the Fed has the tools to offset that.” The “tools to offset that”? The Fed doesn’t have the tools to do anything! It is because of the Fed’s tampering with interest rates that caused a massive bubble in the economy in the first place. The bubble burst, and here we are, trying to clean up the mess. The banks got their bailout, made their money, but the rest of America is suffering from high unemployment, home foreclosure, and impending inflation.

History repeats itself, though. The debt ceiling debate will begin as soon as the fiscal cliff debate ends. Answer me this – what is the point to a ceiling if every time government hits it, it just raises it? The point of the debt ceiling is not to curb spending, but to provide political cover for the goofs in Washington. Republicans can blame Democrats, and Democrats can blame Republicans. How many times did we raise the ceiling under Bush? How many more times will we raise it in the next four years? And by “we” I don’t mean the voters; I mean the morons with (R) and (D) by their names.

Last time we came close to defaulting on our debt, Standard and Poor’s downgraded America’s credit rating, from AAA to AA+. The big guys think America might not be able to actually pay off its debt. But that was a year ago, and our economy is doing much better now. *cue cricket sounds* The week after the election 78,000 new unemployment claims were made. No one is excited about how November’s unemployment numbers are going to look. Growth will remain at 1%, unemployment will remain high, and the prospects of America paying off its debt look worse now than they did a year ago.

So what is the plan? Bernanke will continue to keep interest rates low. He’s been keeping them at record lows since 2008, and obviously it’s been working, so why change things? Keeping rates low wouldn’t drive up inflation, would it? And the guys in D.C. will keep spending and then work to raise the ceiling later.

I remember when I had four wisdom teeth removed a few years ago. I wasn’t thrilled about the idea, but I decided – f*ck it – give me some painkillers and let’s do this! Maybe this is the same course our elected officials are taking – “we’re going to bankrupt this country either way, so f*ck it, let’s do this!” This is only the type of reckless behavior one can expect from Washington.

Goodbye, Cupcakes

Posted by Tim on

This weekend we will all mourn the death of Hostess. Some say that the Bakers’ Union strike was just the “straw that broke the camel’s back”, but not exactly. It was more like the extra 5 carts, 10 people, and no water that broke the camel’s back. Unions are designed to do one thing – raise the cost of labor. They do this by fighting employers for better pay, better health insurance, more days off, etc. But in the end, all this means to the employer is that it costs more to do business. This in turn raises the cost of their product, which are already making low margins, and combine it with the First Lady’s war against junk food, Hostess was doomed.

It all stems from a common theme of the left – economics isn’t real and doesn’t affect me. Profits are not just “evil profits” but the very lifeblood of a business. If a company can not make profits due to high wages, that company has no choice but to go out of business. Unions are there to help employees get a fair shake from their employer, and help negotiate better pay and benefits, but at a certain point, these unions need to realize that its not Hostess trying to “rip them off”. It is Hostess trying to earn a profit.

Interestingly, the Teamsters Union understood this, and agreed to take a small pay cut – a 8% pay cut for one year, and then 3% pay increases for the next 4 years. But the Bakers’ Union didn’t care and refused to work, shutting down production. No profit means no business, and now, thanks to one union, 18,500 people will be out of work… right before Christmas. Instead of taking a 8% pay cut, these workers took a 100% pay cut.

Collective bargaining is a bad idea to begin with, because of the nature of human beings. If we are to take into account all of human history, we understand that power is a bad thing, and that giving too much power to people will always corrupt them. Unions are a concentration of power – mainly the power to bargain and strike with an employer. These unions act as the voice for thousands of people, but in the end, they are only looking out for themselves. Hostess employees were laid off, but the head of the Bakers’ Union makes a nice $200,000 a year. Union members sign away their bargaining rights, and give the power to someone else. It is no wonder that things didn’t work out.

Unions are going away, however. The model forces countless employers out of business. When Hostess closed up shop, 18,500 people lost their jobs, but the Bakers’ Union lost 18,500 members as well. Unions will kill themselves off. Membership is at a 70 year low – only 11.9% of the workforce is union labor. Unions had their job way back when – fighting for safety regulations, and so on, but there are laws for all these things now. The unions’ current role is a way for left wing bosses to collect dues from people and funnel that money to liberal politicians, hoping for a kickback.

If unions are still needed, how is it that the vast majority of people are able to negotiate wages and benefits with their employers without one. I never had a union represent me – instead, if I need a raise, I walk to my boss’s office and have a talk with him. This allows a better relationship to be built between employers and employees, and it allows employers to stay flexible during rough economic times. It is because of the lack of flexibility that unions enforce that has wrecked steel mills, coal mines, and the auto industry. Toyota is building better cars - in America – for less money than the big 3 because they aren’t using union labor. Toyota didn’t need the bailout money.

If businesses do survive, it is because unions do their job, but don’t overdo their job. Fight for raises, for good benefits, but understand that costs are real, and without a profit, the business will close and that hurts everybody – owners and workers.