Caveman Books

The Caveman Explores Economics & Politics

Thoughts About Economics

Part I.

Part II, THE INVENTORY ... MODEL OF MONEY

Part III, The Overall Model

Part IV How Much Cash Is Needed In An Economy?

Part V, Money Needed ... Determined By Production Increases

Part VI, How Do Profits Impact ... An Economy?

Part VII Assets

Part VIII Summary

Part IX, Money and Fractional ... Reserve Banking

Part X, Government

Caveman Articles

Money

Government and Taxes

Creating Money & Inflation

Tax Rates VS. Tax Receipts

Taxing The Rich

Government Debt

Government Stimulus



 

 

 

 

 

Unions and Minimum Wage Laws

 

Letís talk about prices. The price of some object or service is what a willing buyer and a willing seller might agree upon. A recent Mises article explained how the price settles to a value with several buyers and sellers. Various buyers have a maximum price they will pay and various sellers have a minimum price they will accept. When all is said and done, a price is determined within a fairly narrow range. It becomes a fair price. This is all about free enterprise, the free setting of prices, by both buyer and seller.

 

But what if something interferes with that freedom. Then all bets are off. Minimum wage is one example where products and services that once yielded a price that attracted many customers, but when the government sets a minimum wage, the costs to the provider go up and as a result the producersí minimum selling price also goes up. It might be that this wage is such that no agreement on a price can be accomplished, or at least so few people can agree that it is not worth producing the product or the service.

 

A similar thing happens when unions with government help put companies in a stranglehold and force higher wages for their members. Such manipulation upsets the free prices that would normally be derived without interference. And when this happens, the company has only so many alternatives in order to stay in business against non-union competitors or countries with no minimum wage rules or unions.

 

You might say that if all providers are faced with the same minimum wage or union situation, then all will be on a level playing surface. That is what the auto industry thought until the foreign makers figured out how to import cars or start an assembly plant in a right-to-work state. Even though bailed out, the U.S. auto industry is in a not-so-great shape.

 

The first preference for most companies is to lower their costs in their current location because moving is expensive and transportation adds to the cost structure. Also, communication is harder when dealing with remote factories. But what options do they have if they stay put? They canít touch the union labor rates so they either have to lower other labor rates, accept lower quality from their suppliers or automate in order to reduce labor hours. In the short term, the union workers or the minimum wage workers benefit, but before long, they also suffer. If the company automates, both the union workers and the minimum wage workers will find themselves without a job. If the company relocates overseas, or manufactures over there, then the union workers lose their jobs, probably the minimum wage earners as well. No matter what, the consumer loses when the company costs go up which they will do with the extra shipping and administrative costs.

 

The whole key is that prices have to fit the consumer demand in quality and price. If the product or service doesnít do that, then the company either goes out of business or uses other techniques to get costs low enough to allow a fair price. Or maybe it chooses another line of business. As opposed to the government where it can make mistakes and tax their way out of the folly, companies fortunately donít have that option (GM, Chrysler and some of the financial industry recently excepted). Because with government mistakes, the public pays anyway.

 

Of course the other major disruption in these scenarios is that the government ends up paying the unemployed, one way or another. The government cannot afford to do that. In a sense, the government is working at odds with itself. It supports a minimum wage and enforces monopolistic union rules but then it finds itself paying for the unemployment that these situations induce.

 

No matter where you look, the governmentís interference in trade, free enterprise and the economy is usually counterproductive. It is hard to think of a case where government involvement has been helpful except in the short term. Government actions make the long term much worse. A personís productivity means he is worth so much in salary and nothing more. When that is violated, something has to give.


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