Thursday, December 12, 2013

Economic Truths

Today we hear a lot about economic and social justice. There seems to always be talk of raising the minimum wage in order to have it keep up with inflation. We hear about the great wealth divide where the gap between wealthy and poor widens. This is spoken as if there is a limited numbers of dollars and if one person gets wealthy they must be taking it from someone at the bottom. This is a fallacy.

Today we have a global market. There is massive trade between countries. Goods and services are exchanged between countries. I could give you the total global accumulated wealth, but that changes daily. The amount of a country's currency changes daily. The USA is creating $84 billion a month. This doesn't include dollars created out of thin air that is loaned to banks. Even if that currency is temporary, it becomes temporally a part of total currency. Gold and other commodities are converted to cash through Rehypothification in the form of bonds.

Each day wealth is taken and returned to the government. Currently the death tax (estate tax) is 40% of assets above $5.5 million. When the government takes that money it's often returned to the economy in various ways. Eventually that money becomes available to be earned once more. To be sure, this isn't in support of the death tax, but just an explanation of how currency moves. This does show, especially under the current taxing system, rich cannot accumulate wealth to the point that the poor can have no chance of moving to the middle class.

Death isn't the only way that wealth trickles down to the poor. Much of the wealth lies with business – be it small or large. Most businesses are always looking to expand. They will spend money on building facilities in which to produce more products or services. When expansion happens more workers are hired. Careful thought is given to the number of employees needed. In order to make that decision they must look to see how much of their budget can be set aside for labor. They then look at the labor market and decide what is the lowest wage that can be offered and attract the necessary labor. Skilled labor always comes at a premium, while manual labor is usually easier to find.

It would be easy to say they can pay these workers a government set minimum wage. This is fine except in some cases that might reduce the number of workers hired. Because of minimum wage laws many manufacturers find it more cost effect to move labor intensive task out of the country. The other option is to bring in illegal workers from another country who are willing to work for a lower wage under the table. Black market wages run in the billions each year. Even though that dollar amount isn't included in government numbers, it is a part of the regional labor market. Many employers will hire $2 an hour labor if it can be found and able to do the job for which they were hired. Even though this is illegal, it happens everyday and is a part of the overall numbers.

The very people who support illegal immigration are the ones crying for minimum wage laws and increases. Economics is like physics, it can't be changed. Often you can't have one thing without giving up another. It's simple to say businesses earn too much. People often forget that many of the corporate owners are poor to middle class people who depend on income from stock from corporations.

Another aspect of economics is product development. Companies spend millions and sometimes billions on product development. Take large screen televisions for example. When they first came to market $10,000 was the typical price. As wealthy people bought those televisions and the company recouped development cost, prices began to drop dramatically. A product is sometimes out for a decade before they fall into the price range of the average consumer.

When government attempts to control any level of economics there can be unforeseen, disastrous consequences. There are those who sit in their towers of ivory and shout angry rhetoric over economic justice and how you deserve a fair share. The only share that's fair is one for which you have worked. This doesn't mean we need an anarchist free market, but one that is guided by economic sanity. Those shouting the loudest are the ones who seek only their own empowerment and enrichment.

History shows us, and many on the left will admit, that the war on poverty was a failure. Economic justice and fair share is only rhetoric to continue that failed war on poverty. The only thing to have ever produced a large middle class is capitalism. The only thing that can move a person out of poverty is work. Many have moved to the middle class by selling cast off goods of the rich. There is no impossible barrier keeping someone poor, with health being the exception.

Many of the people trapped in poverty are the mentally ill. Mental illness comes in many forms. Sometimes it's simply the inability to leave the house and interact with others. Those who cry for economic justice would do better to spend their time helping those unable to work instead of creating division in order to become rich themselves. If people choose to help those who can't work by giving government their money and power, it's best if kept close to home. Your local government knows better what's best for the community than a politician living three thousand miles away.

There is no easy solution. You can rest assured a solution won't come from a bloated central government that's clueless to their own internal happenings. Trust in sound economic principles. There are criminals running businesses and in a free market once they are discovered they lose their customer base. Right now we have government bailing out those criminals when they should have been dissolved or bought by others who are more reputable.

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