Saturday, January 28, 2017

What About Jobs?

Column 2017-2 (1/30/17)                                 

     During the 2016 campaign candidates talked much about
jobs.  After a politician speaks the first question to ask is, What
is the truth?  This is at least doubly true when politicians talks
about jobs.  There is something about jobs that causes
politicians, and others, to slip into a fantasy world that defies
reality.

     Donald Trump proclaimed that he would be the greatest
jobs president ever.  Was he talking about snow jobs?  The jury
is still out on that.  He didn't set the bar very high.  I don't
recall the last president who was great at creating real jobs. 
Anyone with access to money, his own or someone else's, can
easily and quickly create make work jobs.

     Before continuing we need to consider a simple question,
What is a real job?  Businesses don't hire employees for the
pleasure of writing pay checks.  Hiring is worth while only when
the employee produces more value than what he costs.  That cost
includes taxes, insurance, fringe benefits and all other expenses
resulting from the hiring.

     It is often impossible to determine exactly how much
value each employee contributes to production.  The total value
all employees contribute can be calculated.  For a business to be
profitable and survive total employee cost must be less than the
total value created by the employees.

     If the business pays some employees more than they
produce, it must pay others less.  Employees who are paid
substantially less than what they produce are likely to find
greener pastures elsewhere.  For any business, losing its most
productive employees is a serious problem.  Thus, businesses
have plenty of incentive to pay employees in accordance with
their value to the business.

      When minimum wage laws would force an employer to
pay more than the worker is worth to the business, the business
can't afford to hire the worker.  Thus, the least productive
workers have no jobs and no income.  For them the minimum
and maximum wage is zero.

     An honest calculation of the impact of minimum wage
laws requires including in the calculation those with no wages
because of the laws.  Of course, we can never be certain exactly
how many jobs are lost to minimum wage laws.  This leaves
plenty of room for advocates of minimum wage laws to lie.

     By trampling on freedom in the marketplace businesses
can find other options when the employees don't produce enough
to pay their costs.  Businesses ask government to protect them
from competition.

     The sugar industry is a prime example.  Thanks to
government protection of the sugar industry you pay twice as
much for sugar compared to sugar prices in most other countries. 
Among other things, government protection of the sugar industry
has pushed hard candy makers out of the US.

     If protection isn't enough, businesses plead for outright
subsidies to cover their losses.  Either way the inefficient,
wasteful production goes on.  The taxpayers and customers are
forced to pay for the losses.  Under our crony capitalism,
government interference with competition causes vast amounts of
waste that drag down our standard of living.  Various studies
find that without the government caused waste, our incomes
would be twice or more what they are.

     Should it come as a surprise that the younger generation
considers capitalism to be a dirty word?   Crony capitalism is
the only capitalism they have ever seen.  Free choice in the
marketplace is what matters.  Provide that and willing investors
will provide all the capital we need to have a vigorous,
prosperous economy.

     Presidents don't create productive jobs.  They protect
wasteful inefficient jobs.  The heart of Trump's job plan appears
to be the protection of inefficient jobs.  The most good a
president can do is to get government out of the way.  Then free
people working together will create productive jobs that
efficiently make the things people want to buy.

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Copyright 2017
Albert D. McCallum

Monday, January 23, 2017

What Is Wrong With Businesses?

Column 2017-1

     During the recent election campaign politicians and others
devoted many words to the subjects of businesses and jobs.  If
you found it all confusing, don't feel alone.  It was bad enough
that the speakers disagreed with each other.  Far worse, some of
them couldn't utter two sentences without contradicting
themselves.

     The primary purpose of work is to produce things people
want to use.  Businesses and jobs aren't ends in themselves. 
Both are only means of producing consumer goods, including
services.  If an enterprise, whether a business or some other
entity, doesn't produce something of value to consumers it has
failed.  This failure wasted resources that could have been better
used to produce value.

     The ultimate mission of a business is to earn profits. 
When we have freedom in the marketplace there is only one way
for any business to earn profits.  The business must create value.

     The business buys resources, including human resources.
The business sells its products.  If the business sells its products
for more than its resources cost, it has created value and earned
a profit.  If the opposite happens the business has destroyed
value and suffers a loss.  In free markets the business must soon
find a way to create value or else end up on the rocks of
bankruptcy.

     Consumers have the final say on how valuable the
products are.  Businesses must please their customers or perish. 
Businesses may disappoint their customers.  Those disappointed
customers aren't a good source of future sales.  There is a reason
why con artists don't work the same neighborhood twice.

     Consumers acting in free markets weed out wealth
destroying enterprises while rewarding and encouraging
expansion of wealth creating businesses.  This process is far
more efficient and effective than anything politicians and
bureaucrats can devise.

     For so long as consumers are free to choose in the
marketplace, businesses can't make a career of ripping off
consumers.  Only when consumers lose the freedom to choose
can businesses endlessly rip off those customers.

     Only "do it my way or I will hurt you" government can
empower businesses to exploit customers.  Many businesses
today are ripping customers off.  The ripoffs are possible only
because licensing laws and a swamp full of regulations protect
politically connected businesses from real competition.

      The "occupy Wall Street" crowd made a valid point
when they claimed many big businesses were thriving on ill
gotten gain from exploitation.  They went completely off the
track with their proposed solution.  More laws, regulations and
bigger government weren't the answer to a problem caused by
too many laws and too much government.

     The only reason businesses grow "too big to fail" is that
government protects them from competition and bails them out
when they grow too big to succeed on their own.  The real
problem is crony capitalism where government and big
businesses conspire to take care of each other at the expense of
everyone else.

     Inefficiency, waste and exploitation are always on
defense and fighting losing battles when businesses are free to
produce as they see fit and fully depend on satisfied customers
free to reject any and all products.  The same formula works
equally well with non business enterprises.  Yes, government
schools, I'm looking at you.

aldmccallum@gmail.com
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Copyright 2017
Albert D. McCallum