The Unintended Cost: An Essay on the Economic Crisis

Originally posted on Thinkspot, May 15th, 2021

Like many people, I was taking the government's expanded unemployment benefits for several months in 2020. I started looking for a job during the summer as more businesses began to open. The benefits were supposed to end with the Summer and though they unfortunately did not, I was determined to find a job quickly. I did not want to be one of the people who waited until the last minute and was forced to take something terrible or be without a job.

The job I took paid $12 per hour and is in an industry I'd sworn never to go back to. At the age of 41, this is not a great position to be in. It is, however a situation born of my own poor choices. This is the bed I've made and now here I lay. As it turns out though, I could have simply have continued wallowing away on a government subsidy, getting paid to do nothing. In fact, I would be getting paid more by the government to do nothing than I get paid to actually work.

There are far too many people in this position at this moment in the United States. Quite a lot of them are choosing not to work, causing massive labor shortages. They are of course making the logical choice. Unfortunately, logic is the world's most inaccurate system of measurement. While logic is a useful tool, a statement can be completely logical and still be wrong.

The system cannot sustain on a minimal workforce supporting a maximized welfare state.

Some have said that they refuse to return to work until they are guaranteed "a living wage". This has brought back the $15 per hour minimum wage debate. President Biden is pushing for this very thing. The problem with a living wage is the same, whether it is $7.25, $15 or whatever it was when Franklin Delano Roosevelt created minimum wages. A living wage is a meaningless term. Putting aside the problem of instituting a national minimum wage to serve the individualized economies of various states and municipalities, there is a fundamental problem with using a minimum wage to create a livable wage.

Wages, or labor costs are one of the biggest variables in business. Artificially raising wages naturally raises costs of products and services. What this means is that shortly after you have been given a raise you didn't earn, the newfound money is worth less than it was because you still can't afford things at more or less the same rate as before. Actually, the problem is far, far worse than that... but I'm getting ahead of myself.

One of the issues is that people no longer seem to understand how money or value works. Money is a representation for labor and property. When money is simply printed and given away without attachment, its overall value is lessened. This is because the value of money is defined in part by scarcity. A large part of society has grown to view money as a good unto itself. We dream of fame and luxury instead of purpose and experience. This makes it easy to view those richer than us as villains. They, we are told, have the life we are owed.

There is an insane belief that the rich sit on a pile of money, like Scrooge McDuck swimming in his money bin. This is not how money works. When you hear that Jeff Bezos is worth billions of dollars, you have to understand that he does not have access to most of those funds. Your net worth doesn't just consist of the money you have in the bank (which, by the way, is being used by the bank for investments). It also accounts for property and personal investments. If I have $10 in my bank account, but I own a multi-million dollar mansion and thousands of dollar in stock, I am worth millions, but I still can't afford to buy a meal at McDonald's. Ironically, part of the reason I can't get the McNugget meal is the rising costs in business and inflation.

There are three primary costs involved in a business. These are: business space, materials/ supplies and labor. These are collectively referred to as overhead, or put simply the price of doing business. This is of course, not accounting for permits, taxes and the like. Which of the three is the biggest factor depends on what your business is and where you live. For most businesses in cities, space is likely your highest cost. For many businesses, labor and related costs (benefits, unemployment insurance, etc) are the most expensive factor. Skilled labor is an unavoidable expense. You can't pay someone $15000 a year and expect them to be a doctor. However, laborers at the lowest skill level are mostly interchangeable. You can teach anyone to flip hamburgers. If the person flipping hamburgers wants to earn more and do more, it is up to them to seek out other skills and make themselves valuable.

For decades economists have been discussing the problem with how to help the labor force with a minimum skill level in a business environment with increased automation of services. There are machines now that can accomplish basic tasks like boxing products for shipping. And they can do it better and cheaper than factory workers. Of course, machines break and the cost of developing technology to fit a company's individual needs is high. However, we are still heading in the direction of automation. People with low skill levels are slowly being put out of work. Doubling the minimum wage will only accelerate this process, as you will have given corporations a higher incentive to eliminate labor costs. We saw this a couple of years ago when Democratic Socialist Reprobate, Alexandra Ocasio Cortez (Rep. D.) started talking about $15 an hour for fast food workers. Just the discussion caused McDonald's to invest in computers that allow the customer to place their orders directly, eliminating the need for workers that were taking the orders previously. This didn't completely change the labor landscape, but it was the start.

Vastly increasing costs on corporations will lead to what I will call the George Jetson Solution. George Jetson was a Hanna Barbera cartoon character who lived in the future. He was an average man with an average life and an average family. Every day George would go to work in a factory for business tycoon Mr Spacely. George had exactly one job. He pushed the button that started the machines. Then he took an eight hour nap and presumably pushed the button to turn everything off. I could go further into the parallels of this metaphor, but suffice it to say this: the George Jetson solution is ideal for quite a lot of businesses. A small work force that is only there to make sure the machines are doing their job is vastly more profitable than a large workforce of varying levels of competence. Don't let this happen to minimum wage earners.

In truth, this is only the beginning of the problem.

Let's examine the effect on more skilled laborers. In the fantasy of the $15 solution, everyone will get a raise. Fantasy is the wrong word. This is outright delusional. In reality, everyone who makes more than the current minimum wage will be taking an automatic pay cut. For example, Calvin works at Popeyes. He started at $7.25 per hour at the age of 17. Calvin worked hard and proved himself responsible. Three years later he is making $12 per hour as Assistant Manager. A $15 minimum wage would numerically give Calvin a pay increase. However, in terms of spending power, Calvin is now once again making minimum wage and will be able to afford less. Furthermore, Calvin's co-worker Bryan now makes as much as him, despite constantly missing work and being generally lazy and incompetent. Calvin's hard work accomplished nothing. Bryan and other lazy workers like him were rewarded for their behavior.

Now let us consider Maria, a single mother who worked nights to put herself through school and become an EMT. She's making $18 per hour and able to give her daughter a better life. A $15 minimum wage means Maria is now making barely above minimum wage. She and her daughter are in the exact same position they were in prior to all of her hard work and attempts to educate herself.

You may think Maria will be able to negotiate a higher salary because she is a skilled worker. To a degree this is true. Maria's work has increased her value in the job market and placed her in a specialized group that cannot be replaced with cheap labor or machines. Maria gets put on a salary that is comparable to what she was making before inflation. But because of that, the Ambulance service she worked for has been forced to lay off a bunch of her coworkers. To make up those hours and justify Maria's salary, she must now work much longer shifts. Maria's daughter also suffers as a result.

With massive labor cost increases, Walmart and Amazon will be the only businesses operating. Your neighborhood Mom and Pop shops will be the ones forced to shut down. Most businesses operate on small margins that can't easily countenance major shifts in cost or loss of profits. This effect was seen all through 2020. Big businesses either thrived or at least survived, while small businesses went under left and right. It didn't take long. A couple of months. Some of them went under in less time than that.

A $15 minimum wage will decimate the middle class. All that will be left will be the ultra rich and the extremely poor. Expanding the welfare state won't help. The rich will find ways to tie up their money and shift as much of it as they can to banks in friendly countries. New York City has a budget crisis as the events of 2020 have driven the rich out of the city and into the Hamptons. The situation is so bad that New York Governor Andrew Cuomo has publicly begged them to return.

What you need to understand is that an economy is an eco-system. We are interdependent of one another. When a socialist says the factory owner does nothing while the factory worker makes them money, this is nonsense. If the factory worker were capable of building the factory and could afford the financial risk of running the business, he/ she would be the owner. The factory owner needs the workers, but his value to the business is the most specialized. This is what determines your value as an earner.

The eco-system also affects us on an individual level. Men and women used to be required to know how to do everything to survive. Hunt, farm, shoot, build, etc. Our society has grown past that due to capitalism and free markets.

I don't have to know how to build a modem from scratch. I don't have to pour cement or take the trash to a dump. If I'm hungry and pressed for time, I can go to a restaurant, itself an inter-connected web of trade for skills, and purchase food in exchange for money that I have earned. If you choose not to work unless being highly paid for a job you don't deserve, that is your choice. The fact is that it doesn't just affect the rich. Your trash won't be taken out, your clothes won't be available for purchase and your burger won't be served either. Truthfully, rich people will still be able to get others to do those things for them. It's everyone else who will be left to our own devices.

My own job doesn't pay as high as I like, but it pays above minimum wage in exchange for some advanced skill and risk. Still, I am replaceable. If I want more, I need to get off my ass and work for it. Figure it out. No one owes me a house, vacation time or a 60k per year job.

There are no simple solutions to societal problems. What we know is this: there are no free lunches. There is a price that is being paid for untethered entitlement. Sooner or later that price will become higher than our society can afford.